20 YEARS OF
SUSTAINABLE
DEVELOPMENT
Polymetal International plc
Annual Report 2017
Polymetal is a leading precious metals mining
group operating in Russia, Kazakhstan and
Armenia. Listed on the London and Moscow
stock exchanges, we currently have a
portfolio of eight producing gold and silver
mines and an impressive pipeline of future
growth projects.
STRATEGIC REPORT
Chairman’s statement
20 years of sustainable
development and growth
Group CEO statement
At a glance
Business model
Market trends
Strategy
Key performance indicators
Operating review
Sustainability
Financial review
Risks and risk management
GOVERNANCE
Chairman’s letter
Board of Directors
Senior management
Corporate governance
Audit and Risk Committee
report
01
02
04
14
18
20
22
24
26
48
58
70
77
78
80
82
88
Remuneration report
Directors’ report
94
112
FIND OUT MORE
OPERATING EXPERTISE
GROWTH PROJECTS
FINANCIAL STATEMENTS
Directors’ responsibility
statement
Independent auditor’s report
Consolidated financial
statements
Notes to the consolidated
financial statements
Alternative performance
measures
APPENDICES
Operational statistics
Ore reserves and
mineral resources
Glossary
Shareholder information
115
116
122
126
168
170
178
191
194
SUSTAINABLE DEVELOPMENT
06-07
08-11
12-13
www.polymetalinternational.com
www.polymetalinternational.com/en/
sustainability/
20 YEARS OF SUSTAINABLE DEVELOPMENT
In March 2018, we celebrate 20 years since
the foundation of Polymetal. During that time,
we have consistently delivered a strong
operating performance and made good on our
promises to our shareholders, employees,
communities and other stakeholders.
Dear fellow stakeholders
In 2018, Polymetal celebrates its 20th anniversary;
perhaps still youthful by global metrics but, nevertheless, a
respectable milestone for a business built from the ground
up in an emerging market. During that time, the Company has
delivered a production compound annual growth rate (CAGR)
of 24%, developed 16 mines from scratch, added 6.7 Moz of
gold equivalent and 9.5 Moz of palladium equivalent in newly
discovered resources, paid out more than US$1 billion in
dividends and attained industry leadership in processing
refractory gold ore. We have expanded our operations within
three mining jurisdictions in the former Soviet Union (Russia,
Kazakhstan and Armenia) and have maintained a premium
listing on the London Stock Exchange since 2011.
Playing to our strengths
Over the last 20 years, we have built on our core
competencies: using a hub-based system (Dukat,
Omolon and Okhotsk); mastering POX technology
and trading refractory gold concentrates (Kyzyl, Albazino,
Mayskoye); operating successfully in difficult climatic
conditions at locations with little or no existing infrastructure
(five operations in the Russian Far East). Consistently
focusing on high-grade assets has also ensured that
we have delivered superior returns on capital.
Financial prudence pays dividends
Adherence to strong capital discipline has been the foundation
of our strategy – in careful project selection with a preference
for high grade and low-capital-intensity, in value-accretive
mergers & acquisitions (M&As), as well as in our dividend
policy. From free cash flow for 2012-2017 totalling US$1.3
billion, Polymetal paid out US$1.0 billion in dividends, providing
tangible returns to shareholders with a sector-leading three-
year Total Shareholder Return (TSR) of 61%.
Leading by example
At the same time, Polymetal recognises its duty of care for its
entire stakeholder base, as evidenced by its practice of good
governance and sustainable development in the regions in
which we operate. The Board and management are fully
committed to a sustainability agenda with a renewed focus
on health and safety. In other areas, Polymetal’s position as an
industry leader in sustainability is acknowledged both by local
communities and by an increasing number of international
rating agencies, most recently the World Wildlife Fund and
Sustainalytics. We are also signatories to the International
Cyanide Management Code.
Polymetal is at the start of another dynamic stage in its
history. Our investment in new projects – Kyzyl, and
potentially into Nezhda, Prognoz and a second Amursk POX
line – is expected to enable Polymetal to deliver superior
shareholder returns and industry leadership over the long
term. I look forward to making this journey, along with the
Company’s stakeholders.
Bobby Godsell
Chairman
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
01
20 YEARS OF SUSTAINABLE
DEVELOPMENT AND GROWTH
Market cap
US$5bn
2003
Vitaly Nesis is
appointed as CEO
A new organisational structure is
formed to increase efficiency.
Employees
11,919
2007
Polymetal listing on the
London and Russian
Stock Exchanges
Polymetal goes public on the
London and Russian Stock
Exchanges, an affirmation of
its adherence to international
standards of corporate
governance and the quality
of its asset portfolio.
499
2008-2011
Formation of the 2nd
generation of assets
and expansion into
Kazakhstan
As result of successful
greenfield exploration and M&A,
Polymetal added Albazino,
Mayskoye, Omolon/Kubaka
and Varvara to its portfolio
of high quality assets.
1998
Polymetal is founded
Polymetal was established by
the ICT Group in St Petersburg
with the objective of building
a highly professional Russian
mining company, using advanced
technology throughout – from
exploration to bullion production.
1999-2002
Formation of the 1st
generation of assets –
Dukat, Lunnoye,
Voro and Khakanja
Investment in high-quality
assets marks the start of
long-term strategy.
158
Production
(Koz of GE)
2014
Acquiring world-class asset
– Kyzyl
Polymetal announces its largest
acquisition of Kyzyl (Kazakhstan),
one of the world’s largest gold
deposits, increasing gold reserves
by 50% and contributing over
300 Koz of GE production per year.
1,433
2016
Expanding operations
For the first time, Polymetal
expands its operations into
Armenia with the acquisition
of the Kapan operating
mine and processing plant.
Our exploration programme
reveals a large PGM deposit
at Viksha.
2017
Focus on sustainable
development and
growth
Polymetal achieves
significant progress in
sustainability performance
with high rankings from
leading agencies, including
Sustainalytics, DJSI-Robeco
SAM, FTSE4Good and
WWF. EBRD deal finances
the completion and delivery
of Kyzyl in 2018.
2011
Joining the FTSE 100
With significant operational
developments during
the year, Polymetal also
completes a premium
listing on the London Stock
Exchange and enters the
FTSE 100 Index, raising
US$763 million from
the IPO.
Dividends paid
US$1bn
952
2012
First gold poured in
Amursk POX plant
Polymetal’s Amursk POX –
Russia’s first operating
pressure oxidation plant –
was commissioned,
delivering its first gold
production in April.
Inaugural dividend
A new dividend policy is
implemented and special
dividends introduced.
1998
02
02
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL TODAY
2nd largest
gold producer in Russia
8 operations
across 3 countries
1 POX facility
first in the FSU
4 major
development projects
FTSE 250
constituent
LOOKING AHEAD
Operating excellence
Consistently delivering a robust
operating and financial performance
helps generate positive cash flow and
significant returns for our shareholders.
Advancing medium-term growth
Kyzyl is due to deliver its first gold in
Q3 2018 and will drive medium-term
production growth through to 2020.
M&A and exploration
Greenfield and brownfield exploration
have proved to be efficient growth
sources for the Company, along with
value-accretive acquisitions.
Adhering to high standards
Good corporate governance and
sustainable development create
shareholder value and show our
commitment to the interests of
all our stakeholders.
➔
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
03
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POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017
A successful and eventful year
2017 has been an exciting year for Polymetal, with significant
progress made on the Kyzyl construction and the Amursk
POX expansion. Both projects are on track and will launch
within a few months. We further advanced our growth
pipeline with the initial resource-and-reserve estimate on
Nezhda joint venture reaffirming the economic attractiveness
of the asset and justifying our development approach; we
have also secured an option to consolidate our ownership.
During the year, we invested in Prognoz, the largest
undeveloped silver asset in Russia and progressed with
pilot plant testing at Viksha, our first platinum group metals
(PGM) project.
We have substantially increased our resources this year.
Reserves at Nezhda2 were confirmed as 2.0 Moz of GE at
4.0 g/t with an exploration upside of 8.9 Moz of additional
resources at 5.0 g/t. At Prognoz2, where we have begun
drilling, according to historical estimates there is a high-grade
resource of 292 Moz of silver at 586 g/t with excellent
exploration potential. An updated reserve estimate at the
Komar gold deposit reported an increase of 524 Koz of
gold with the grade stable at 1.8 g/t. We are now planning
to transport more than 2 million tonnes of ore from Komar
to our Varvara processing site, doubling the anticipated
production rate.
GROUP CEO STATEMENT
GE production
1.43 Moz
+ 13%
Adjusted EBITDA1
US$745 million
(2016: US$759 million)
Dividends proposed for the year
US$189 million
(2016: US$179 million)
1 The definition and calculation of non-IFRS measures, including Adjusted
EBITDA, Total cash costs, All-in cash costs, Underlying net earnings,
Net debt, and the related ratios are defined in the Alternative Performance
Measures section on pages 168-169.
2 On a 100% basis.
We have made significant progress in 2017
on existing operations and new projects,
and 2018 looks set to be a transformational
year for Polymetal.
Operationally, we met the production guidance comfortably,
growing GE production 13% year-on-year to 1.43 Moz.
Just one year after launch, Svetloye delivered superior
results while Komar provided strong support to our Varvara
operations. Other mature mines generally performed in line
with expectations, with the exception of Mayskoye where
open-pit production has been delayed until 2018 in order
to rectify recovery issues. By the end of the year we also
achieved a record 97.2% recovery at our flagship
Amursk POX hub.
Full-year gold production of 1,075 Koz, a 21% increase
year-on-year, allowed Polymetal to join the prestigious
1 Moz club, the second gold company listed on the
London Stock Exchange to achieve this impressive milestone.
Robust financial performance
Despite peak capital spending at Kyzyl and the Amursk POX
expansion, in addition to our investment in new development
projects, Polymetal delivered meaningful free cash flow,
totalling US$143 million in 2017. There were some cost
pressures during the year due to the significant 15%
appreciation of the Russian Rouble, driven by the rebound
in oil prices, which pushed TCC up to US$658/GE oz in 2017
(2016: US$570/GE oz). However, this was partially offset by
the best performance in gold prices since 2010, with 13%
annual growth.
Exceptional investment prospects
Polymetal’s focus on its particular strategic
and competitive strengths – in selective mining,
processing refractory ores and trading precious
metal concentrates – has established a company
with the enviable position of being both able to
acquire or explore attractive investment
opportunities, and also to deliver on them.
High-grade assets
Our choice of high-grade assets and strategic use
of a hub-based system generates free cash flow
through the cycle and maximises returns on
investment, while at the same time reducing
project development risks.
Investing in greenfield exploration
Reserve quality and low-capital intensity are
fundamental to our continuing investment in
greenfield exploration and how we appraise
M&A opportunities.
Committed to capital discipline
Through our commitment to capital discipline,
we are able to deliver a sector-leading TSR
and maintain a strong balance sheet.
This enabled us to deliver a net profit for the year of
US$354 million. In line with the new dividend policy, the
pay-out ratio for regular dividends has been increased to
50%. In 2017, dividends of US$138 million (US$0.32 per
share) were paid out and a final dividend of US$129 million
(US$0.30 per share) is proposed.
Health and safety still a key focus
Although there has been some improvement in our health
and safety performance, there is no room for complacency
since, sadly, we have to report the death of two employees
in 2017. We continue to view this as unacceptable and remain
committed to our zero-fatalities target, as our enhanced
critical risk management system gains traction.
At the same time, we have received wide-spread recognition
for our sustainability initiatives, both here in our home market
and internationally. Most recently we were awarded a top
ranking for environmental responsibility among Russian
metals and mining companies by the World Wildlife Fund;
Sustainalytics positioned Polymetal as an outperformer in
the metals and mining industry, ranking it first among its
peers and fourth globally among the 44 mining companies
included in the report; our performance on the Dow Jones
Sustainability Index was assessed as above industry
average and up 28% over the previous year. We were also
awarded the highest score for Corporate Governance and
Anti-Corruption in the FTSE4Good Index.
Anticipating the future
2018 looks set to become another transformational year for
Polymetal. The launch of the Kyzyl project is scheduled for
the third quarter and is much anticipated both within the
Company and by all our stakeholders. This, in turn, should
allow us to move closer to finalising decisions on two further
investments by the end of 2018, namely the construction
plans for Nezhda and the feasibility study for a second POX
line at Amursk. We expect further production growth in 2018,
with this predominantly driven by Kyzyl but also from Komar’s
ramp-up to 2.2 Mtpa and from our existing mines continuing
to deliver stable performances.
Last, but by no means least, I wish to thank our employees
for all their commitment and professionalism. It is their
efforts that have helped to shape the Company over the
last 20 years and this should be celebrated, along with
the anniversary itself. I am optimistically looking forward
to the next decade in our history and to us all playing our
parts in this new chapter of Polymetal’s story.
Vitaly Nesis
Group CEO
04
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
05
OPERATING EXPERTISE
DELIVERING ROBUST
OPERATING AND FINANCIAL
PERFORMANCE
We have built a solid track record of delivering on our
promises. For the sixth consecutive year, we beat our
production guidance through a consistently robust and resilient
operating performance. This allowed us to generate positive
free cash flow and significant cash returns to our shareholders.
GE PRODUCTION
ADJUSTED EBITDA*
1.43 Moz
US$745m
+13%
2016: US$759m
ORE PROCESSED
UNDERLYING NET EARNINGS*
13 Mt
+14%
US$376m
2016: US$382m
DIVIDEND PROPOSED FOR THE YEAR
US$189m
2016: US$179m
* The definition and calculation of non-IFRS measures, including Adjusted EBITDA, Total cash costs,
All-in cash costs, Underlying net earnings, Net debt, and the related ratios are defined in the
Financial review section.
See more on P26 and 58
06
PROGRESS UPDATE
Svetloye
In 2017, the Svetloye
heap leach operation was
ramped-up to full capacity,
making a substantial
contribution to the Group’s
strong performance. Just one
year after launch, Svetloye
delivered superior results
with GE production of 106 Koz
compared with 23 Koz in
2016 and was the lowest
cost operation, with TCC of
US$313/GE oz, on the back
of exceptional operational
delivery and positive
grade reconciliations.
Albazino/Amursk
In 2017, Albazino/Amursk
achieved record gold
production of 269 Koz,
up 10% year-on-year,
while advancing the
debottlenecking project.
The production increase
was primarily driven by higher
hourly productivity and recovery
levels, as well as significant
improvement in head grades.
At the Amursk POX plant, a
record recovery of 97.2% was
achieved in Q4 2017, due
mostly to the automation of the
material flow control system
and expansion of the water
treatment section.
Komar and Varvara
Almost 2 Mt of Komar ore
was railed to the Varvara hub
resulting in record GE
production of 130 Koz, up
54% year-on-year. In 2018,
additional Komar ore will
displace the lower-grade
material from the Varvara
deposit, increasing production
and reducing costs at the
Varvara processing hub.
To further streamline logistics
and reduce haulage costs,
a new railway spur has been
commissioned at Komar.
Kapan
In 2017, full year gold
production at Kapan
reached a record 50 Koz of
GE. The strong operational
performance at Kapan
was driven by increased
processing volumes and
improved head grades on
the back of ongoing
measures to debottleneck
the underground mine and
improve recovery levels.
This will continue in 2018
along with active exploration
within the region.
PRODUCTION
106 GE Koz
2016: 23 GE Koz
AVERAGE POX RECOVERY
PRODUCTION
96.4%
2016: 94.5%
130 GE Koz
+54%
PRODUCTION
50 GE Koz
+94%
See more on P38
See more on P35-36
See more on P40
See more on P41
07
POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017 GROWTH PROJECTS
ADVANCING MEDIUM-TERM
GROWTH THROUGH BUILDING
AND RAMPING UP KYZYL
The Kyzyl project is a major medium-term growth driver for
Polymetal and will be instrumental in achieving medium-term
growth in production through to 2020. We are aiming to
deliver the first gold at Kyzyl in Q3 2018 and ramp up the
debottlenecking project at the Amursk POX in line with this.
GOLD RESERVES
HIGH-GRADE
7.3 Moz
7.7 g/t
with 6.9 g/t in the open-pit
EXCELLENT EXPLORATION UPSIDE
LIFE OF MINE
3.1 Moz
additional resources at 6.8 g/t
22 years
first 10 years open-pit
Kyzyl completion scorecard
Amursk POX expansion project
completion scorecard
Open pit
100%
Hydrometallurgical plant
95%
Processing plant
85%
Oxygen station 2
75%
External infrastructure
100%
Other processing objects
Internal infrastructure
Tailings storage
Concentrate offtake
95%
95%
100%
Infrastructure
80%
75%
See more on P42-43
08
PROGRESS UPDATE
Kyzyl
Kyzyl is one of the best development-
stage gold projects in the world. With its
large high-grade reserves, long mine life
and low-capital intensity, it is set to create
significant shareholder returns
Construction activities are now focused
on the installation of smaller technological
equipment and Kyzyl is on track to
produce the first concentrate in Q3 2018.
First ore has already been mined from
the open-pit ahead of schedule in
January 2018.
There is a strong demand for concentrate
from multiple offtakers with the first
contract signed in Q1 2018.
Amursk POX expansion
Expansion of Amursk POX plant targets
an increase in POX capacity, enabling
Polymetal to retain approximately 50% of
Kyzyl concentrate for in-house treatment,
as opposed to a third-party offtake.
This is expected to improve effective
gold recovery from concentrate,
as well as bring down processing
and transportation costs.
The debottlenecking project at the
Amursk POX is progressing on schedule.
Polymetal plans to ramp up the
debottlenecked POX plant in the
second half of 2018, in time to take first
feed from the Kyzyl concentrator.
POX-2 project
Polymetal is continuing to undertake
extensive metallurgical testwork
and evaluate its ability to use high-
temperature (230-240C) POX technology
to process high-carbon Kyzyl concentrate
and third-party feedstocks. The project
will enable Polymetal to materially
improve the economics of refractory gold
projects by increasing gold recovery
from concentrates and bringing down
processing and transportation costs,
and will also strengthen Polymetal’s
commercial position on the concentrate
market vis-à-vis offtakers. A decision
on construction of the second POX is
expected in late 2018, in conjunction with
the ramp-up of Kyzyl and an investment
decision on Nezhda project.
See more on P42-43
See more on P35
See more on P35
09
POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017
GROWTH PROJECTS
BUILDING LONG-TERM
GROWTH THROUGH
M&A AND GREENFIELD
EXPLORATION
Greenfield and brownfield exploration has proved to be one
of the most efficient growth sources for Polymetal historically.
During 2017, our reserves and resource base increased by
5% to 20.9 Moz and 10% to 18.2 Moz of GE, respectively.
At the same time, we remain open to value-accretive
acquisition opportunities.
INITIAL RESERVE ESTIMATE
INITIAL RESOURCE ESTIMATE
1.4 GE Moz
2.0 GE Moz
Ore reserves reconciliation
(GE Moz)
19.8
0.05
1.2
1.4
20.9
-1.6
Ore reserves
01.01.2017
Gold/silver price
ratio change
Depletion
Revaluation
Initial reserve
estimates
Ore reserves
01.01.2018
See more on P44-47
10
PROGRESS UPDATE
Nezhda
In 2017, Polymetal secured an option
to consolidate 100% in Nezhda1, its joint
venture in Yakutia (Russia) for the
development of a high-grade refractory
gold deposit. The initial ore reserve
estimate (JORC) for Nezhda reaffirmed
its economic viability with open-pit ore
reserves2 estimated at 15.5 Mt of ore
with an average GE grade of 4.0 g/t for
2.0 Moz of GE contained. Additional
mineral resources are estimated at
55.9 Mt of ore with an average GE grade
of 5.0 g/t for 8.9 Moz of GE contained.
Production is currently projected to
start in 2022.
1 Current share of Polymetal in Nezhda JV is 17.66%.
2 On a 100% basis.
Prognoz
Prognoz is the largest undeveloped
primary silver deposit in Russia.
Polymetal acquired 5% in January
2017 with new terms negotiated to
consolidate a 45% stake in the property.
The transaction is expected to close in
the first half of 2018. Mineral resources2
are estimated at 292 Moz at 586 g/t
silver, 3% lead. Additional mineralised
potential: 7.9-18.1 Mt of ore at 469 g/t
silver for 119-273 Moz of silver contained.
In 2017, Polymetal completed 37 km of
diamond drilling to confirm historical
results and established basic remote-site
infrastructure on the property. Exploration
results fully confirmed the extent, width,
and grade of two centrally located veins.
ORE RESERVES (on a 100% basis)
MINERAL RESOURCES (on a 100% basis)
2.0 GE Moz
at 4.0 g/t (JORC)
292 SE Moz
at 586 g/t
See more on P44-45
See more on P46
11
POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017 SUSTAINABLE DEVELOPMENT
ADHERING TO HIGH
STANDARDS OF CORPORATE
GOVERNANCE AND
SUSTAINABLE DEVELOPMENT
We strongly believe that high standards in both corporate
governance and sustainable development are essential to
creating shareholder value. As well as reinforcing strategic
leadership and robust internal controls, they demonstrate
our commitment to safer working conditions, responsible
environmental management and the interests of all
our stakeholders.
STAFF TURNOVER RATE
5.4%
2016: 5.5%
1st
LTIFR
0.15
-21%
0
in environmental responsibility rating for
metals and mining companies in Russia by
WWF and UNDP
major environmental incidents
See more on P48-57 and 77-111
12
PROGRESS UPDATE
Governance
Our Board combines the effective
representation of investors with a majority
representation of fully independent,
non-executive Board members. Diverse,
both in terms of professional experience
and nationality, the Board both aspires to
and believes that it achieves global best
practice in terms of corporate governance.
During 2017, Polymetal instigated the first
stages of a comprehensive Board
succession programme, which will ensure
that we continue to have a majority of
independent Directors on the Board while,
at the same time, providing a greater
depth in finance, mining and institutional
investment skills.
Sustainability
In 2017, Polymetal made significant
progress in sustainability performance
with an all-round improvement that has
been highly rated by leading sustainability
agencies. We believe that this recognition
reflects Polymetal’s serious commitment
to sustainability and continuous
improvement, which translates into safer
working conditions for people, responsible
environmental management, social
support for the local communities
and growing economic value for our
stakeholders. Our focus remains
on health and safety, where we are
determined to achieve our principal
goal of zero fatalities at our operations.
Sustainability highlights
• Sustainalytics positioned Polymetal as an
outperformer in the metals and mining
industry, ranking it first among its peers
and fourth among the 44 mining
companies included in the report.
• FTSE4Good Index awarded Polymetal
the highest score for corporate
governance and anti-corruption.
• WWF rank the Company first in the
environmental management category
and in environmental responsibility
ratings for metals and mining companies
in Russia.
• Our performance on the Dow Jones
Sustainability Index was above
industry average and up 28%
over the previous year.
• We developed our climate strategy,
implemented an energy management
system and started to use renewable
energy.
See more on P77-115
See more on P48-55
See more on P48-55
13
POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017 AT A GLANCE
Polymetal International plc is a leading precious metals mining group
operating in Russia, Kazakhstan and Armenia listed on the London Stock
Exchange and Moscow Stock Exchange. The Company is a member of the
FTSE 250 and FTSE Gold Mines. Polymetal has a portfolio of eight producing
gold and silver mines and an impressive pipeline of future growth projects.
RESERVES AND RESOURCES
Profile among peers / Average reserve grade1
(g/t of GE)
PROVEN TRACK RECORD
Annual production
Based on 80:1 Ag/Au ratio (Koz of GE)
4.2
3.9
3.7
3.7
2.7 2.6
5
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G
M
A
I
l
d
o
g
o
g
n
A
l
1.0 1.0 1.0 0.9
0.7 0.7
k
c
i
r
r
a
B
o
l
l
i
n
s
e
r
F
e
o
h
a
T
t
n
o
m
w
e
N
i
n
m
a
t
n
e
C
a
n
a
m
a
Y
l
d
o
G
w
e
N
a
r
r
a
t
n
e
C
s
s
o
r
n
K
i
l
k
s
v
o
v
a
p
o
r
t
e
P
0.5
r
u
e
o
C
Source: Company data. Gold, silver, copper proved and probable reserves
as at 01.01.2018.
1 Eldorado, Iamgold, Newgold, Randgold, Goldfields, Newcrest, Buenaventura,
Fresnillo, Acacia reported as at 01.01.2017 in the absence of an updated statement.
Reserves and resources
(Moz)
25
20
15
10
5
20.8
19.8
20.9
18.2
16.5
12.8
2015
2016
2017
Reserves
Resources
Average reserve/resource grades
(g/t)
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
1,433
1,400
1,312
1,267
1,260 1,269
1,220
1,168
1,190
1,090
2013
2014
2015
2016
2017
Guidance
Actual
DEVELOPMENT AND GROWTH PROJECTS
Kyzyl
Launch in 2018
Ore reserves
Average production
7.3 Moz GE 300 Koz
7.7 g/t average grade
for open-pit
Nezhda1
A very large high grade gold project
Ore reserves
Mineral resources
2.0 Moz GE 8.9 Moz GE
4.0 g/t average grade
5.0 g/t average grade
5
4
3
2
1
4.8
4.2
4.2
3.9
3.8
4.7
Prognoz2
Largest undeveloped primary silver deposit in Russia
Mineral resources
292 Moz of silver
at 586 g/t, 3% lead
Reserves
Resources
2015
2016
2017
1 JV with current share of 17.66%, all data is on 100% basis.
2 JV with current share of 5%, all data is on 100% basis.
14
OUR STRATEGY
1. Pay significant
and sustainable
dividends through
the cycle
2. Continue to grow
our business without
diluting its quality
KEY FINANCIAL FIGURES
Revenue
US$1,815m
(2016: US$1,583m)
> Deliver robust operating and financial
performance at existing mines through
cost control and reserve replacement
> Deliver medium-term growth through
building and ramping up Kyzyl
> Build and advance long-term growth
pipeline through opportunistic M&A
and greenfield exploration
> Maintain high standards of corporate
governance and sustainable development
WHAT MAKES US DIFFERENT
> Focus on high-grade assets
> Strong capital discipline
> Investing in exploration
> Hub-based system
> Exemplary governance
> Operational excellence
Total cash costs*
US$658/GE oz
(2016: US$570/GE oz)
All-in sustaining cash costs*
US$893/GE oz
(2016: US$776/GE oz)
Adjusted EBITDA*
US$745m
(2016: US$759m)
Free cash flow*
US$143m
(2016: US$257m)
Net earnings
US$354m
(2016: US$395m)
* The definition and calculation of non-IFRS measures, including Adjusted EBITDA, Total cash costs, All-in cash costs, Underlying net earnings,
Net debt, and the related ratios are defined in the Alternative Performance Measures section on pages 168-169.
STRONG CAPITAL DISCIPLINE
HIGH STANDARDS OF GOVERNANCE
Cumulative free cash flow since IPO
Cumulative FCF
Gold price
1,400
1,200
1,000
800
600
400
200
1,800
1,600
1,400
1,200
1,000
800
600
400
200
2012
2013
2014
2015
2016
2017
US$m Cumulative FCF US$ Gold price
SUSTAINABILITY
> Signatory to the International Cyanide Management Code
> Leader for environmental management in WWF/UN rating
> Completion of ESIA at Kyzyl (EBRD Environmental and
Social Policy implemented)
> Carbon Management and Human Rights Policies developed
> Biodiversity conservation incorporated into corporate
environmental management
> We perform well on most ESG metrics and are part of
FTSE4Good and STOXX ESG Leaders indices
> Polymetal adheres to the highest standards of
corporate governance since its original listing
on London’s Main Market in 2007
> We instigated the first stages of a comprehensive
Board succession programme, which will ensure
that Polymetal continues to have a majority of
independent Directors on the Board while at the
same time providing a greater depth in finance,
mining and institutional investment skills
LTIFR reduction
21%
Community investment
US$11.7m
(2016: US$5.1m)
15
POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017POLYMETAL INTERNATIONAL PLC ANNUAL REPORT & ACCOUNTS 2017
WHERE WE OPERATE
13
+
St. Petersburg
Moscow
Russia
7
Ekaterinburg +
8
+
Kostanay
Georgia
9
Azerbaijan
Armenia
10
+
Oskemen
Kazakhstan
Pevek
5
2
1
12
11
6
Okhotsk
Magadan
4
3
Vanino
+
Khabarovsk
+
Nakhodka
GROWTH PROJECTS
10 KYZYL
LARGE HIGH-GRADE GOLD PROJECT IN
NORTH-EASTERN KAZAKHSTAN
Reserves: 7.3 Moz at 7.7 g/t Au (JORC)
Resources: 3.1 Moz at 6.8 g/t Au (JORC)
Mining: Open-pit followed by underground
Processing: Flotation + POX/concentrate
offtake
First production: Q3 2018
Life of mine: 22 years
11 NEZHDA JV1
RUSSIA’S 4TH LARGEST GOLD DEPOSIT
Reserves: 2.0 Moz of GE at 4.0 g/t (JORC)
Resources: 8.9 Moz of GE at 5.0 g/t (JORC)
Mining: Open-pit (11 years), followed
by underground
OPPORTUNITIES
12 PROGNOZ JV2
LARGEST UNDEVELOPED PRIMARY SILVER
DEPOSIT IN RUSSIA
Reserves: 292 Moz of silver at 586 g/t
Mining: Open-pit (5-8 years), followed
by underground
Expected throughput: ~1 Mtpa
13 VIKSHA
Resources: 213 Mt at 0.98 g/t of combined
precious metals
Processing: conventional flotation processing
to produce bulk copper-PGM sulphide
concentrate + offtake
1 JV with current share of 17.66%, all data is on 100% basis.
2 JV with current share of 5%, all data is on 100% basis.
Operating mine
Growth projects
Further growth
opportunities
Competence Centre
+ City/town
Seaport
16
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
OPERATING ASSETS
1 DUKAT HUB
2 OMOLON HUB
4 ALBAZINO
6 OKHOTSK HUB
8 VARVARA
Operating mines: Dukat, Lunnoye,
Goltsovoye, Arylakh
Key exploration projects: Perevalnoye,
Primorskoye
Processing: 1.6 Mtpa Dukat concentrator
and 400 Ktpa Lunnoye Merrill-Crowe plant
Operating mines: Birkachan, Sopka, Tsokol,
Oroch, Olcha
Development projects: Burgali
Key exploration projects: Yolochka, Irbychan,
Nevenrekan
Processing: 850 Ktpa Kubaka CIP and
Merrill-Crowe plant, 1 Mtpa Heap
Leach plant
3 AMURSK HUB
Processing: 500 tpd Amursk POX plant
Operating mine: Albazino
Processing: 1.6 Mtpa concentrator
5 MAYSKOYE
Operating mine: Mayskoye
Processing: 850 Ktpa concentrator
Operating mines: Avlayakan, Ozerny,
Svetloye
Key exploration projects: Kirankan,
Khotorchan, Kundumi, Levoberezhny
Operating mines: Varvara, Komar
Key exploration project: Tarutin
Processing: 4.2 Mtpa Float + Leach
Processing: 600 Ktpa Merrill-Crowe plant
and Svetloye 1 Mtpa Heap Leach plant
9 KAPAN
7 VORO
Operating mine: Voro
Key exploration projects: North Kaluga,
Saum, Tamunier, Pesherny
Processing: 950 Ktpa CIP and 900 Ktpa HL
Operating mine: Kapan
Development project: Lichkvaz
Processing: Fully mechanised
underground mine with current capacity
of approximately 400 Ktpa. Conventional
750 Ktpa flotation concentrator and
various infrastructure facilities.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
17
BUSINESS MODEL
Our investment in the skills and expertise that support
key competencies, backed by strong financial discipline,
ensures a robust performance throughout the cycle.
OUR CAPITAL
OUR BUSINESS
Financial
Strong balance sheet and a large
portfolio of available undrawn credit
facilities; access to international
equity markets and use of shares
as acquisition currency.
Business
Key competencies in refractory
gold concentrate trading; sustainable
relationships with contractors
and suppliers.
Intellectual
Investing in skills and expertise, use of
leading technologies in refractory gold
processing (POX), selective mining,
development of know-how.
Natural
Portfiolio of high-grade reserves; water,
energy and fuel to run our operations.
Human
11,919 employees; attracting and
retaining high-potential employees
across Russia, Kazakhstan and
Armenia; nurturing young leaders
to manage further growth.
Social and relationship
Constructive relationships with
local governments and communities;
transparent and productive dialogue
with stakeholders.
Exploration
Development
Mining ore
Processing
Mine closure and
land reclamation
Selling
Logistics/
Transporting ore
WHAT MAKES US DIFFERENT
FOCUS ON HIGH-GRADE ASSETS
Return on investment in the precious metals industry is reliant on
grades and mining conditions. We achieve better returns and lower
risks from our project portfolio by setting appropriate thresholds
on head grades and largely focusing on open-pit mines.
STRONG CAPITAL DISCIPLINE
We engender a strong focus on capital discipline throughout the
business; maximising risk-adjusted return on capital is our priority
in all investment decisions. We do not retain excess cash and
return free cash flow to shareholders through substantial dividend
payments while retaining a safe leverage level.
INVESTING IN EXPLORATION
Investment in both greenfield and near-mine exploration provides
us with a cost-effective increase in our reserve base and, along with
successful acquisitions, is the key source of our long-term growth.
HUB-BASED SYSTEM
Our centralised hub-based system handles ores from different
sources, achieving economies of scale by minimising processing
and logistics costs, as well as capital spending per ounce.
This facilitates production at otherwise uneconomical
medium- and small-sized near-plant deposits.
EXEMPLARY GOVERNANCE
We believe that good corporate governance is key to the ongoing
success of the business and value creation for our shareholders.
We are compliant with all regulatory requirements and are
recognised as sustainability leaders in the countries in which we
operate, adopting best practice in nurturing relationships with all
our stakeholders in government, industry and the communities.
OPERATIONAL EXCELLENCE
We pride ourselves on our operational excellence and
delivering on our promises to shareholders. Despite difficult
trading conditions, we beat our production guidance for the
sixth consecutive year.
OUTCOME
Shareholders
We deliver a sustainable dividend stream.
US$189m proposed for 2017
Other capital providers
We have an excellent credit history
and strong partnerships within
financial markets.
3.96% average cost of debt in 2017
Employees
We provide competitive remuneration,
which is above the regional average,
and comfortable working conditions,
as well as stimulating career
development opportunities.
11,919 employees
Suppliers
We provide fair terms and have
established long-term and mutually
beneficial partnerships, while ensuring
suppliers’ integrity and ESG compliance.
Over 4,500 potential contractors audited
for ethical principles and anti-corruption policies
Local communities
We invest in our local communities,
providing employment opportunities
and improving infrastructure, and engage
with them to achieve their support for the
projects that we undertake.
US$11.7m investments in social projects
State authorities
We contribute to the national wealth and
are a significant tax payer in the regions of
operation, supporting local government’s
social projects.
US$143m taxes paid
Market trends and opportunities
Our investments in attractively priced high-quality assets enable
us to generate a consistently sustainable free cash flow and
deliver returns for our shareholders.
Risk management
We have in place a robust risk management system,
which is designed to mitigate potential risks to the sustainability
and success of the business.
Strategy
Our strategies, whilst underpinning the business model,
also allow us the flexibility to react to any given market
opportunities or challenges.
Governance
We are committed to maintaining world-class
ethical standards and behaviour across
every aspect of our business.
18
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
19
MARKET TRENDS
While 2016 was quite volatile, 2017 saw
the global economy pick up with many assets,
including major indices, rise in value and close the
year on a bullish note, all against the backdrop of
heightened geopolitical instability and tightening
monetary policy across the board. The markets
witnessed three interest rate hikes by the US
Federal Reserve during the year and a benchmark
increase by the Bank of England, for the first time
in a decade, while the EU Central Bank declared
victory over deflation, signaling a potential end to
their loose monetary policy.
Gold
The precious metals sector was no exception, displaying
positive price momentum in the course of the year.
For the second year in a row, gold became one of the best
performing assets following consecutive price declines
from 2013-2015. The gold price grew by 13.5% – its biggest
annual gain since 2010 – and outperformed all major asset
classes other than stocks. This performance was primarily
supported by a weakened US Dollar, as well as heightened
investor uncertainty on the back of geopolitical instability and
a potential pullback on increased P/E ratios and expensive
stock valuations, which fuelled investor flows into gold in
order to manage risk exposure. Although gold was traded
within a narrow range of US$1,200–1,300 for most of the
year, it closed at US$1,297/oz compared with US$1,146/oz
in 2016, averaging US$1,257 for the year and recording a
year-high of US$1,351 in the third quarter.
However, gold demand remained under pressure in 2017,
down 7% to 4,072 tonnes over 2016. The decline was
driven by substantially lower retail investment demand and
lagging ETFs, which only added one-third of 2016’s inflows.
On the other hand, buying from the official sector recorded a
substantial gain of 36% year-on-year as Russian and Turkish
central banks continued to bolster gold reserves. Technology
demand recorded its first year of growth as the use of gold
in smartphones and vehicles continued to increase, ending
a six-year downtrend. Physical demand remained relatively
flat over the previous year, while jewellery demand posted its
first annual increase since 2013, however remaining weak in
a historical context.
Gold and silver mine output, on the other hand, continued
to slow down due to substantial production losses seen in
Indonesia and China on the back of environmental concerns
and a crackdown on illegal mining. This has resulted in
the plateauing of global output, which many believe to
be the start of a multi-year downtrend, at least at current
price levels.
Silver
In 2017, silver underperformed gold ending the year on
par with its 2016 average of US$17.0/oz. This was primarily
driven by lacklustre interest from investors on the back of
stronger performances from equities and a sharp decline
in investment demand. ETF holdings also weighed on silver
price dynamics, posting a decrease over 2016. Meanwhile,
in 2017, industrial demand for silver grew by roughly 3%
on the back of increased demand from the solar and
automotive sectors. Mine output recorded a modest
decrease year-on-year due to production declines in
Chile and Australia, as well as in Guatemala where
resource nationalism disrupted production at one of
the largest primary silver mines.
Platinum group metals
2017 was an interesting year for PGMs, primarily led by
palladium’s stellar performance. Palladium outperformed
every other precious metal in 2017, gaining more than
50% and reaching a price of more than US$1,000/oz
something not seen since the start of 2000. Platinum,
on the other hand, rose only 4% as the market share of
diesel-powered vehicles – where the metal is primarily
used – declined in favour of petrol cars. As a result, platinum
prices remained under pressure, while palladium prices
benefited from the boost in global petrol car demand.
Moreover, palladium prices were further bolstered due to
a substantial supply deficit on the back of mining issues
in South Africa.
How we respond to these trends
We continue to utilise our 20 years of experience
in mine performance optimisation and the pursuit
of high-grade and high-optionality assets in order
to ensure resilient economics against the backdrop
of commodity price and FX volatility. Our strong
performance in 2017, with a record 1,433 Koz
of GE produced and a net profit of US$354 million,
re-affirms the success of our approach and
sets us on the right track to deliver on our
long-term strategy.
In order to limit our exposure to risk, in the process
of project approval, our stress tests are carried
out with a 20% discount to spot prices and a
10% increase in operating costs, ensuring that
our operations can be sustained even under
volatile market conditions. Similarly, we continue
to review the prices used for our reserve and
resource statement on a regular basis to reflect
market fluctuations.
To learn more about our market risk management
process, please see page 71.
Mine production around the world
Year-on-year mine production recorded a modest decline
in 2017, marking what many believe is the beginning of a
sustained downtrend in gold mine output, which is set to
continue during 2018. At the global level, environmental
concerns and a crackdown on illegal mining were the
driving forces behind the drop in output in 2017. Of equal
significance is the broader issue of a reduction in project
pipelines, as a consequence of lower gold prices and
wider project development challenges across the sector,
and the fact that new mine starts in recent years have mainly
served to fill the gaps left by production losses elsewhere.
The league table of the biggest gold mining countries in
2017 remains unchanged: China, Russia and Australia.
Our operating environment
In Russia, the mining industry is the second-largest
sector after oil and gas. However, despite the country’s
vast resource potential in precious metals, it remains largely
underexplored with a lack of investment in the sector, due
mainly to low gold prices and the limited availability of foreign
debt and equity investments stemming from international
sanctions introduced in 2014.
For the Russian economy as a whole, 2017 proved to be a
year of moderate improvement as the oil price continued the
positive price momentum it gained in 2016, finishing the year
at US$60 per barrel. The Russian Rouble also strengthened
by 15% year-on-year from 67.1 RUB/US$ in 2016 to 58.3
RUB/US$ in 2017. Conversely, this had a negative impact
on the mining sector, resulting in an increased dollar value of
rouble-denominated operating costs across the board and
lower Adjusted EBITDA margins.
Although Kazakhstan and Armenia have a significantly
smaller share in global gold mine production, these countries
have a strong growth profile, attributable to a good climate
for foreign investment in the sector as well as some
government incentives. The economics of Kazakh gold
mining was also supported by the moderate devaluation of
the Kazakh Tenge (5% stronger against the US Dollar year-
on-year), while the Armenian Dram remains the most stable
currency in the Former Soviet Union.
Precious metals market summary
Gold demand by category in 2017 and 2016
(Tonnes)
Currency and oil price
Gold price, US$/oz
Silver price, US$/oz
Brent crude oil, US$
RUB/US$
1,600
1,400
1,200
1,000
800
600
400
200
0
25
20
15
10
0
9%
9%
30%
37%
53%
47%
7%
8%
03 Jan
17
Gold Silver
03 Mar
17
03 Jun
17
03 Sep
17
03 Dec
17
Source: Metals Focus; World Gold Council
20
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
2017
Jewellery
Technology
Investment
2,136
333
1,232
Central banks and other institutions
371
2016
Jewellery
Technology
Investment
2,054
323
1,596
Central banks and other institutions
390
100
90
80
70
60
50
40
30
20
01 Jan
17
Oil US$
01 Mar
17
01 Jun
17
01 Sep
17
01 Dec
17
90
80
70
60
50
40
30
AISC reconciliation
(US$/GE oz)
108
18
776
8
7
3
2
893
-28
2016
US$ rate
exchange
Domestic
inflation
Change
in average
grade
processed
by mines
Change
in sales
structure
Au/Ag
ratio
change
Mining tax
change –
Au & Ag
price
Other
2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
21
STRATEGY
KEY GOALS
COMBINING GROWTH
AND DIVIDENDS
1
PAY SIGNIFICANT AND SUSTAINABLE
DIVIDENDS THROUGH THE CYCLE
Polymetal already stands out in the mining sector for its
dividend policy and track record of substantial dividend
payments. We want to continue delivering meaningful
cash returns to our shareholders at any stage of the
commodity cycle and of our investment cycle through
a combination of regular and special dividends.
2
CONTINUE TO GROW OUR BUSINESS
WITHOUT DILUTING ITS QUALITY
At the same time, we also want to grow production
and, hence, free cash flow, through the addition of
new high-grade, value-accretive assets.
STRATEGIC OBJECTIVES
DESCRIPTION
RISKS
REMUNERATION
PERFORMANCE IN 2017
TARGETS FOR 2018
Ensure robust
operating and
financial
performance at
existing mines
Focus on full-capacity utilisation
and robust cost performance of our
operating mines by driving continued
operating improvement. Extend our
life-of-mine by investing in near-mine
exploration. This will allow us to
generate free cash flow and translate
it into significant dividends.
• Production risk
• Health and safety risk
• Market risk
• Exploration risk
Deliver medium-term
growth through
building and
ramping up Kyzyl
The Kyzyl project is a major
medium-term growth driver
for Polymetal, with an average
annual production of 300 Koz from
2019. We are aiming to deliver the
first concentrate at Kyzyl in Q3 2018.
• Market risk
• Construction and
development risk
M&A combined
with own
exploration
efforts
Maintain high
standards of
corporate
governance and
sustainable
development
While delivering free cash flow,
we want to secure high-quality
sources of long-term growth
through our own greenfield
exploration programme and M&A.
We are actively looking at targets
within the Former Soviet Union
where we can create value with
our core competencies.
• Exploration risk
• Construction and
development risk
• Production risk
• Political risk
Maintaining high standards
of corporate governance and
sustainable development gives
us a licence to operate and the
much-needed trust of all
stakeholders. Health and safety
at our operations is a key priority.
• Health and safety risk
• Environmental risk
• Legal risk
• Political risk
Related KPIs for executive
management annual bonus:
• Achieving production budget
(Group CEO and below)
• Total cash costs
(Group CEO and below)
• Health and safety
(Group CEO and below)
• Resource growth
(Chief Geologist and below)
Related KPIs for executive
management
• Annual bonus – project delivery
on time and budget
(Group CEO and below)
• LTIP – TSR above peers,
which can only be generated by
delivering sustainable growth
through projects such as Kyzyl
• 1.43 Moz GE produced in 2017,
2% above original guidance
• Adjusted EBITDA of US$745 million,
almost flat year-on-year despite a
stronger Russian Rouble
• Free cash flow of US$143 million
• Brownfield reserve additions: 1.4 Moz
• 1.55 Moz GE production
• Full ramp-up to 2.2 Mtpa at Komar
• Commencement of combined
float-leach circuit with flotation
at Mayskoye
• TCC of US$650-700/oz
Amursk:
• Completion of
construction,
commissioning and
launch of new
desorption sites,
completion of filtration
sections of the
leaching tails and the
oxygen station No. 2
Kyzyl:
• 48.5 Mt of stripping
volumes
• 100% completion of
external infrastructure
and open-pit construction
• Completion of tailings
storage and installation
of major processing
equipment
• Ramp-up the debottlenecked
POX plant in the second
half of 2018
• Production of first concentrate
in Q3 2018
• Further exploration of identified
ore bodies together with an
ore reserve estimate
Related KPIs for
executive management
• LTIP – TSR above peers,
which can be generated by
value-accretive deals creating
shareholder value
• Increase in mineral resources by
10% to 18.2 Moz of GE
• Increase of average grade in mineral
resources by 11% to 4.7 g/t of GE
• Initial JORC-compliant reserve estimates
for Kapan, Lichkvaz and Nezhda
• Resource additions: 2.0 Moz
• Further advance resource-and-
reserve estimates at brownfield
operations
• Pre-feasibility study and
development decision for Nezhda
• Updated resource estimate
at Prognoz and Viksha
Related KPIs for
executive management
• Full compliance with the provisions
of the UK Corporate Governance Code
• Principal goal of zero fatalities
at all operations
• Annual bonus (CEO and below) –
25% weight on H&S performance
+ additional penalty factor applied
to the remaining part of the bonus
for any fatalities
• Top rating in environmental responsibility
• Continue implementing a
by WWF/UNDP
• The highest score for corporate governance
and anti-corruption by FTSE4Good
• Two fatalities at our mines
• Start of comprehensive Board
succession programme
geomechanical management
system
• Continued compliance with global
and local best practices in ESG
22
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
23
KEY PERFORMANCE INDICATORS
OPERATING KPIs
FINANCIAL KPIs
KPI linked to executive remuneration
*
Our strategy
1
Pay significant
and sustainable
dividends
through
the cycle
2
Continue to
grow our
business
without diluting
its quality
Deliver robust
operating and
financial
performance
Deliver
medium-term
growth
Build and
advance
long-term
growth pipeline
Maintain high
standards of
governance and
sustainable
development
SUSTAINABILITY KPIs
Gold equivalent
production*
(Koz)
+13% Revenue
(US$m)
+15% Total cash cost*
+15%
All-in sustaining cash cost +15%
(US$/GE oz)
Underlying return on equity
(ROE) (%)
-2pp.
Capital expenditure*
(US$m)
+41%
GHG emissions intensity
(CO2 equivalent tonnes
per 10Kt of ore processed)
-8%
1,600
1,200
800
400
1,267
1,269
1,433
1,441
1,583
1,815
2,000
1,500
1,000
500
2015
2016
2017
2015
2016
2017
Annual targets for gold equivalent (GE)
production are an indicator to the market
of our confidence in our operating
performance – and one that we
regularly exceed.
In 2017, Polymetal delivered a strong
operational performance with a record gold
equivalent production of 1,433 Koz, a 13%
increase year-on-year, meeting our initial
production guidance for the sixth
consecutive year.
Top-line indicator, heavily depends on
commodity prices but also driven by
delivery of production volumes.
In 2017, revenue increased by 15% over
2016 to US$1,815 million, primarily driven
by GE production growth of 13%. Gold and
silver sales volumes both broadly followed
the production dynamics.
1 000
750
500
250
733
538
570
776
658
893
2015
Total cash cost
2016
All-in sustaining cash cost
2017
High-grade, full capacity utilisation and
continued operating improvement, as well
as foreign exchange rates and oil price are
the key drivers of total cash cost per ounce.
TCC were US$658/GE oz, up 15% from
2016 levels and within the Company’s
updated guidance of US$650-675/GE oz.
The increase in TCC was predominantly
driven by the strengthening of the Russian
Rouble. AISC amounted to US$893/GE oz,
an increase of 15% year-on-year, driven
mostly by the same factor.
20%
15%
10%
5%
16%
18%
16%
400
300
200
100
383
271
205
1,000
750
500
250
621
638
590
2015
2016
2017
2015
2016
2017
2015
2016
2017
Return on equity is one of the most
important metrics for evaluating a
company’s profitability and measures the
efficiency with which a company generates
income using the funds that shareholders
have invested.
In 2017, return on equity (based on
underlying net earnings and average equity
adjusted for translation reserve) was 16%,
compared with 18% in the prior period,
and remains one of the highest in the sector.
Our rigorous approach to all investment
decisions ensures tight controls on capital
expenditure, boosting return on invested
capital for shareholders and sustainable
development for the business.
Capital expenditure came in at US$383
million, up 41% compared with 2016 on
the back of accelerated pre-stripping
and construction at Kyzyl, as well as an
increased brownfield exploration spend
across the operating assets portfolio.
Reducing GHG emissions is one of the
core pillars of our long-term commitment
to maintaining the highest environmental,
social and governance standards.
We are aware of climate change and
recognise our responsibility to manage
carbon footprint and minimise our GHG
and other emissions. This year the part of
our energy needs were met through clean
energy sources and together with our energy
efficiency programmes it resulted in GHG
intensity decrease of 8%.
Relevance
to strategy
1
Relevance
to strategy
1
Relevance
to strategy
1
Relevance
to strategy
1
Relevance
to strategy
2
Relevance
to strategy
2
Ore reserves
(Moz)
+5%
Adjusted EBITDA1
(US$m)
-2% Free cash flow1
(US$m)
-44%
24
18
12
6
20.8
19.8
20.9
800
600
400
200
759
745
658
400
300
200
100
263
257
143
2015
2016
2017
2015
2016
2017
2015
2016
2017
Both extending mine life through near-mine
exploration and new discoveries from
greenfield exploration contribute to the
Company’s long-term growth prospects.
In 2017, the Company increased its
ore reserves by 5% to 20.9 Moz of gold
equivalent on the back of successful
exploration at Albazino, Komar and Dukat,
as well as initial reserve estimates at Kapan
and Nezhda.
Adjusted EBITDA provides an indicator of
our ability to generate operating cash flows
from the current business.
A key indicator in any business. Generating a
healthy free cash flow enables us to provide
significant cash returns for shareholders.
Adjusted EBITDA was US$745 million,
down 2% compared to 2016, as a result of
increased costs incurred due to a stronger
Russian Rouble, which largely offset
production growth.
Despite intensive construction activities at
Kyzyl in the course of 2017, the Company
continued to generate positive free cash
flow1 that amounted to US$143 million.
Dividends declared for the year +5%
(US$/share)
Net earnings
Underlying net earnings1
(US$m)
-10%
-1%
Lost time injury
frequency rate*
(LTIFR)
-21%
0.51
0.42
0.44
0.60
0.45
0.30
0.15
400
300
200
100
382
395
376
354
291
225
0.30
0.20
0.10
0.22
0.19
0.15
2015
2016
2017
2015
2016
2017
Net earnings
Underlying net earnings
2015
2016
2017
Our aim is to deliver meaningful dividends
to our shareholders at all stages of both the
commodity cycle and our investment cycle.
In 2017, dividends of US$138 million (0.32
per share) were paid out and a final dividend
of US$129 million (US$0.30 per share) is
proposed, bringing total dividend declared
for the period to US$189 million.
Underlying net income is a comprehensive
benchmark of our core profitability excluding
foreign exchange gains/losses and
impairments.
Underlying net earnings (adjusted for the
after-tax amount of write-down of metal
inventory to net realisable value, foreign
exchange gains/losses and change in fair
value of contingent consideration liability)
were US$376 million, almost flat compared
with 2016.
An improvement in the health and safety of
employees at our operations is a key priority
with a goal of zero fatalities.
Sadly, the Company did not manage to
reach its zero fatalities target in 2017, with
two lives lost at the Group’s operations
during the year. Nevertheless, Polymetal
notes a visible improvement in its overall
health and safety performance, with a 21%
reduction in LTIFR compared with 2016.
Relevance
to strategy
Relevance
to strategy
1
Relevance
to strategy
1
Relevance
to strategy
1
Relevance
to strategy
1
Relevance
to strategy
2
1 The definition and calculation of non-IFRS measures, including Adjusted EBITDA, Total cash costs, All-in cash costs, Underlying net earnings, Net debt, and the related ratios are
defined in the Alternative Performance Measures section on pages 168-169.
24
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
25
OPERATING REVIEW
KEY OPERATING HIGHLIGHTS
In 2017, Polymetal delivered a strong operational
performance with a record GE production of
1,433 Koz, meeting our production guidance for the
sixth consecutive year. We expect further production
growth in 2018, coming mainly from Kyzyl but also
from Komar’s full ramp-up and our existing mines
continuing to deliver stable performances.
Stripping, Mt
Underground
development, km
Ore mined, Kt
Open-pit
Underground
Ore processed, Kt
Average grade in
ore processed
(gold equivalent, g/t)
Production
Gold, Koz
Silver, Moz
Copper, Kt
Zinc, Kt
2017
114.0
115.4
12,589
8,241
4,347
13,037
2016
82.1
92.2
13,380
9,506
3,874
11,417
Change
+39%
+25%
-6%
-13%
+12%
+14%
3.9
4.0
-4%
1,075
26.8
2.7
4.8
890
29.2
1.5
2.9
Gold equivalent, Koz1
1,433
1,269
Sales
Gold, Koz
Silver, Moz
Copper, Kt
Zinc, Kt
Gold equivalent, Koz2
Average headcount
Health and safety
Fatalities
LTIFR
1,090
26.5
2.6
4.7
1,456
10,953
2
0.15
880
30.7
1.6
2.8
1,301
10,813
4
0.19
1 Based on 1:80 Ag/Au, 5:1 Cu/Au and 2:1 Zn/Au conversion ratios.
2 Based on actual realised prices.
26
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
A record-breaking year
In 2017, Polymetal delivered a strong operational
performance with a record gold equivalent production
of 1,433 Koz, a 13% increase year-on-year, meeting our
initial production guidance for the sixth consecutive year.
The robust finish to the year was driven by contributions
from the fully ramped-up Svetloye heap leach (Okhotsk hub),
as well as a solid performance at Komar (Varvara hub),
Omolon and Amursk-Albazino.
Gold production totalled 1,075 Koz, a 21% increase year-on-
year, allowing Polymetal to join the prestigious 1 Moz club,
the second premium-listed gold company on the London
Stock Exchange to achieve this important milestone. Silver
production was down 8% to 26.8 Moz, due to the planned
grade decline at the Dukat and Lunnoye underground mines.
Gold sales were 1,099 Koz, up 25% year-on-year, while silver
sales were down 14% year-on-year at 26.5 Moz, generally in
line with production dynamics and volume.
Analysis of production results
Mining
Stripping volumes in 2017 grew by 39% to 114 Mt of rock
moved, driven mostly by drill-and-blast pre-stripping at
Kyzyl and the removal of historic waste stockpiles at Komar.
Underground development increased by a further 25% to
115 km (2016: 92.2 km), with increased capacity to match
processing volumes at Kapan underground mine, as well
as underground development for new brownfield extensions
at an active pace at Omolon hub (Birkachan and Olcha)
and at Dukat hub (Perevalnoye and Terem). At Olcha,
first ore stopes were extracted at the underground mine,
where development is in full swing. Underground
development at Perevalnoye and Terem is making good
progress with both ore sources expected to make significant
contributions to the feed at the Omsukchan concentrator
in 2018.
+21%
-8%
+87%
+66%
+13%
+24%
-14%
+57%
+68%
+12%
+1%
-50%
-21%
GOLD EQUIVALENT PRODUCTION BY MINE IN 2017
3%
15%
22%
9%
8%
19%
Dukat
Albazino/Amursk
Mayskoye
Omolon
Voro
Varvara
Okhotsk
Kapan
2017
Koz
322
269
124
202
120
130
217
50
2016
Koz
369
244
116
170
129
85
131
26
14%
9%
Total
1,433
1,269
Change
-13%
+10%
+7%
+19%
-7%
+54%
+65%
+94%
+13%
Ore mined decreased by 6% year-on-year to 12.6 Mt (2016:
13.4 Mt), mainly as a result of the completion of open-pit
mining at Oroch and a temporary suspension at Birkachan
(where sufficient historic ore stockpiles are available).
Processing
Ore processed increased by 14% to 13.0 Mt (2016: 11.4 Mt),
mainly on the back of the resumption of the Birkachan heap
leach project and the ramp-up of Svetloye.
As expected, the average gold equivalent grade in ore
processed decreased slightly from 4.0 g/t to 3.9 g/t, while
remaining close to average reserve grade. The decline came
mostly from mature operations: the normalisation of the
grade profile at the Dukat and Lunnoye mines; a scheduled
slight decline in average grades at the Voro heap leach
facility; and a lower gold average grade at Omolon’s Kubaka
plant due to a change in the feedstock mix.
Production and sales
In 2017, Polymetal continued to deliver solid production
results, producing 1.4 Moz of gold equivalent, up 13%
year-on-year. Key drivers behind this performance were
Svetloye (Okhotsk hub), Komar (Varvara hub),
Omolon and Amursk-Albazino.
At Okhotsk operations, Svetloye heap leach was ramped-up
to full capacity, making a significant contribution to the
Group’s strong performance and delivering superior results:
GE production was 106 Koz compared with 23 Koz in 2016.
Komar provided valuable support to the Varvara operations:
almost 2 Mt of Komar ore was mined and railed to the
Varvara hub, resulting in a record GE production of 130 Koz,
up 54% year-on-year. At Kapan, GE production almost
doubled: a good operational performance was driven by
increased processing volumes and improved head grades
on the back of ongoing measures to debottleneck the
underground mine and improve recovery levels.
Albazino/Amursk achieved record gold production of
269 Koz, up 10% year-on-year, driven by higher productivity
and recovery levels, as well as a significant improvement
in head grades. At Dukat, there was a 13% decline in GE
production, where higher processing volumes and improved
recoveries failed to offset declining grades. This is partially
due to a reduction in cut-off grades, which take into
account lower mining costs, lower treatment charges
and higher recoveries.
Metal sales in 2017 were 1,456 Koz of gold equivalent, up
12% compared with 2016, broadly following the production
dynamics. While most of the sales are comprised of refined
metals, we continue to sell concentrates from Dukat (gold/
silver), Varvara (gold/copper), Kapan (gold/copper and gold/
zinc) and Mayskoye (refractory gold) to different offtakers
worldwide. Offtake allows us to maximise our margins and
achieve an optimal combination of transportation costs and
treatment charges/recoveries, this being one of our core
competencies. In February 2018, Polymetal also secured
its first offtake contract for Kyzyl concentrate.
Exploration
Exploration – greenfield and brownfield – is a core element
in our strategy for driving future growth and has proved to
be one of the most efficient growth sources for Polymetal
historically. Both extending mine life through near-mine
exploration at existing operations and new discoveries from
greenfield exploration contribute to the Company’s long-term
development prospects. Our exploration activities are
focused on six regions in Russia – Khabarovsk, Magadan,
Karelia, Yakutia, Chukotka and Urals – as well as on
Kazakhstan and Armenia.
Four new licences were obtained over the course of 2017,
bringing the total number to 82, of which 60 are currently
involved in active exploration activities.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
27
OPERATING REVIEW
Our key exploration objectives in 2017
• Brownfield exploration and resource-to-reserve
conversions and resource upgrades at our brownfield
projects with particular focus mature assets:
Omolon (Irbychan and Yolochka); Voro (Saum) and
Okhotsk (Levoberezhny, Gyrbykan, and Kundumi);
• a comprehensive exploration campaign at Dukat
(the deeper levels of Lunnoye deposit, Primorskoye
and Perevalnoye) with a goal to extend the scope
of resource estimates;
• an initial JORC reserve-and-resource estimate at
Nezhda’s zone 1 and further drilling on smaller,
potentially mineralised zones;
• 37 km of diamond drilling at the Prognoz silver deposit
to confirm the resources of Main and Swamp ore zones;
Key 2017 achievements
In 2017, Polymetal succeeded in extending the life-of-mine
at producing assets and continued to invest in the next
phase of our growth. The Company completed 421 km of
exploration drilling in 2017, up 48% year-on-year with the
scope of exploration expanding to include our new assets,
mostly Prognoz and Nezhda joint ventures, in addition
to continued exploration efforts at existing operations.
The total capital expenditure on exploration was
US$58 million, up 43% compared with 2016.
As a result of our exploration efforts, significant resource-to-
reserve conversions were achieved during the year, along
with the completion of new reserve-and-resource estimates
for several projects, including:
• at Albazino, the initial ore reserve estimate for Farida
• a JORC-compliant reserve estimate and a combined
open-pit (169 Koz GE) and Anfisa underground (47 Koz GE);
life-of-mine plan for Kapan and Lichkvaz;
• significant ore reserves increase of 524 Koz of gold
• 30 km of step-out drilling at Komar and an update of
(+49%) at Komar;
the reserve-and-resource estimates for the deposit; and
• continuing step-out and deep-level drilling at Kyzyl.
Map key
Further growth opportunities
Competence Centre
Hub
Operating mine
Growth projects
+ City/town
Seaport
Pevek
Mayskoye
Omolon hub
Dukat hub
+
Evensk
Nezhda
Magadan
Prognoz
Okhotsk hub
Okhotsk
Svetloye
Vanino
Albazino
Amursk POX hub
Finland
Viksha
Estonia
Latvia
+
St. Petersburg
Kaliningrad +
Belarus
+
Moscow
Voro
Russia
Ukraine
Ekaterinburg +
Varvara
+
Kostanay
Georgia
Kapan
Azerbaijan
Armenia
+
Oskemen
Kyzyl
Kazakhstan
28
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
• an initial JORC-compliant reserve estimate at Kapan,
which comprised 558 Koz GE at an average grade of
4.3 g/t. Additional mineral resources were estimated
at 1,632 Koz GE at an average grade of 6.1 g/t;
• an initial JORC-compliant reserve estimate at Lichkvaz
comprised 134 Koz GE at 3.9 g/t, while additional mineral
resources amounted to 257 Koz GE at 5.0 g/t; and
• at Nezhda, an initial JORC-compliant ore reserve estimate
for open-pit mining at ore zone 1 that comprised (on a 100%
ownership basis) 15.5 Mt of ore with an average grade of
4.0 g/t GE containing 2.0 Moz of GE1. Additional mineral
resources for Nezhda were estimated at 55.9 Mt of ore with
an average grade of GE 5.0 g/t, containing 8.9 Moz of GE2.
2018 targets
In 2018, Polymetal will continue to invest in exploration with
the goal of expanding the pace and scope of drilling, as well
as a prospect evaluation. The key objectives are as follows:
• to achieve resource-to-reserve conversions at existing
operations with relatively shorter life-of-mine;
EXPLORATION PROJECTS
• Polymetal aims to complete initial ore reserves estimates
for the following deposits in 2018: Irbychan and Yolochka
at Omolon; Saum and Pesherny at Voro; Levoberezhny
and Kundumi at Okhotsk; Primorskoye and Perevalnoye
(revaluation) at Dukat;
• to prepare an updated mineral resources estimate and
achieve resource-to-reserve conversion at Nezhda to
include the southern flank of ore zone 1 and smaller
mineralised zones;
• to complete an audited JORC-compliant resource estimate
for Prognoz largest ore zones, Main and Swamp;
• to prepare an updated mineral resources estimate for
Viksha, based on new drilling data and metallurgical
studies; and
• to continue step-out and in-fill drilling at Kyzyl to increase
reserves for open-pit mining.
1 350 Koz pro rata to Polymetal’s current ownership of 17.66%.
2 1,576 Koz of GE pro rata to Polymetal’s current ownership of 17.66%.
n
o
i
t
a
r
e
p
o
/
t
n
e
m
p
o
e
v
e
D
l
n
o
i
t
a
r
o
p
x
E
l
g
n
i
t
c
e
p
s
o
r
P
RESERVES
JORC compliant
RESOURCES
JORC compliant
EVALUATION
STAGE
KARELIA
01 Viksha
1
2
3
4
5
6
7
8
13
15
14
16
17
18
19
9
10
11
12
KAZAKHSTAN
URAL + ORENBURG
KHABAROVSK
02 Bakyrchik flanks
03 Komar
(Elevator, South area)
04 Bolshevik
05 Saum
06 Tamunier
07 Krasnoturinsk
08 Albazino
09 Levoberzhny
10 Khotorchan-Gyrbykan
11 Kundumi
12 Kumirny
Operating mines
Brownfield
Greenfield
MAGADAN +
CHUKOTKA + YAKUTIA
13 Dukat flanks
14 Nezhda
15 Perevalnoye
16 Yolochka
17 Irbychan
18 Primorskoye
19 Prognoz
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
29
OPERATING REVIEW
Exploration areas and volumes (mine site exploration excluded)1
Brownfield
Voro
Voro flanks
Tamunier
Other
Varvara
Varvara
Komar
Other
Dukat hub
Dukat flanks
Lunnoye flanks
Primorskoye
Terem
Other
Albazino
Mayskoye
Okhotsk hub
Khotorchan/Gyrbykan
Svetloye
Maimakan-Kundumi
Levoberezhny
Kumirniy
Other
Omolon hub
Olcha
Oroch
Yolochka
Irbychan
Nevenrekan
Other
Kyzyl project
Bakyrchik
Bolshevik
Subtotal
1 Discrepancies in calculations are due to rounding.
Greenfield
Drilling, km
Drilling, km
Urals
Karelia (Viksha)
Yakutia
Nezhda
Prognoz
Armenia
Lichkvaz
Other
Subtotal
Total
2017
22.9
39.6
70.9
33.7
37.3
0.8
–
0.8
134.2
420.9
2016
6.2
12.8
39.4
39.4
–
25.2
24.0
1.2
44.2
284.3
Reserves and resources
In 2017, the Company increased its ore reserves by 5%
to 20.9 Moz of GE on the back of successful exploration
at Albazino, Komar and Dukat, as well as initial reserve
estimates at Kapan and Nezhda. Gold reserves were up 5%
at 18.4 Moz, while silver reserves decreased 3% to 158 Moz.
At the same time, copper reserves grew 25% to 82 Kt.
Mineral resources (in addition to ore reserves) increased by
10% to 18.2 Moz of GE, mainly driven by initial resource
estimates for the Pesherniy and Nezhda deposits, as well as
resource additions at the deeper levels of Mayskoye and Dukat.
The average grade in ore reserves was stable year-on-year
at 3.9 g/t of GE and remains one of the highest in the sector.
At the same time, the average grade in mineral resources
increased by 11 % to 4.7 g/t of GE due to high-grade
resource additions at new projects.
We expect 2018 to result in further significant extensions
of our reserves and resources.
2017
11.0
3.1
1.0
6.8
108.5
35.6
71.4
1.5
28.8
15.8
2.3
6.9
3.8
–
30.2
33.4
48.0
6.4
2.0
12.8
15.2
6.6
5.1
18.4
2.6
–
6.7
4.7
4.4
–
8.3
8.3
–
2016
13.7
1.9
6.2
5.6
75.8
23.6
44.6
7.6
51.3
17.2
13.8
11.0
4.7
4.5
27.9
–
28.2
7.0
0.6
2.5
8.3
–
9.8
32.8
–
1.7
5.9
11.6
8.4
5.1
10.5
5.7
4.9
286.7
240.1
Ore reserves and mineral resources summary1
1 January
2018
1 January
2017
Change
Ore reserves
(proved + probable),
gold equivalent Moz
Gold, Moz
Silver, Moz
Copper, Kt
Zinc, Kt2
Average reserve
grade, g/t
Mineral resources
(measured +
indicated + inferred),
gold equivalent Moz
Gold, Moz
Silver, Moz
Copper, Kt
Zinc, Kt2
Average resource
grade, g/t
20.9
18.4
158.0
81.6
85.8
19.8
17.6
163.0
65.4
NA
3.9
3.8
18.2
15.7
109.1
147.9
221.8
4.7
16.5
14.4
87.5
206.7
NA
4.2
5%
5%
-3%
25%
NA
+1%
10%
9%
25%
-28%
NA
11%
1 Mineral resources are additional to ore reserves. Mineral resources and ore reserves
of lead are not presented due to the immateriality and are not included in the calculation
of the gold equivalent. PGM mineral resources are presented separately and are not
included in the calculation of the gold equivalent. Discrepancies in calculations are
due to rounding.
2 Zinc was not included in the calculation of the gold equivalent for the ore reserves
and mineral resource statement as at 01.01.2017 due to immateriality.
Outlook for 2018
During 2018, we have an important year ahead of us with
the first production from Kyzyl, which is set to deliver free
cash flow soon after ramp-up. This will pave the way for
further investment decisions by the end of the year: the
construction plans for Nezhda and the feasibility study
for a second POX line at Amursk. In the meantime,
we will continue to focus on sustaining robust operating
performance at mature operations and advancing our
long-term project pipeline, including Prognoz and Viksha.
We expect further production growth in 2018, coming mainly
from Kyzyl but also from Komar’s (Varvara hub) full ramp-up
to 2.2 Mtpa and our existing mines continuing to deliver
stable performances. At Mayskoye, a combined float-leach
circuit with flotation will commence operation in May 2018,
while open-pit mining will resume in Q1 2018.
The launch of the Kyzyl project is scheduled for Q3 2018 and
is much anticipated both within the Company and by all our
stakeholders. At the processing facility, construction activities
will be focused on the installation of smaller technological
equipment. In Q1 to Q3 2018, we will commission the
accomodation camp, engineering networks and facilities,
warehouse facilities, and heat and power complex, as well as
the tailing dump and the main concentrator complex. Kyzyl
remains on track to produce the first concentrate in Q3 2018.
In January 2018, the first ore was mined from the open-pit
ahead of schedule. Polymetal is on track to ramp up the
debottlenecked POX plant in the second half of 2018,
in time to take feed from the Kyzyl concentrator.
We will also focus on our new projects that will drive growth
beyond the launch of Kyzyl. We plan to advance the feasibility
studies for Nezhda and POX-2 projects and continue the
drilling campaign at the Prognoz silver project, with an
updated resource estimate scheduled for Q4 2018.
The Company reiterates its production guidance for
2018 and 2019 of 1.55 Moz and 1.7 Moz of gold equivalent,
respectively. The main growth drivers will be the ramp-up
of Kyzyl, re-commissioning of the oxide circuit at Mayskoye
and incremental improvements at Varvara and Kapan.
This should offset anticipated grade declines at Khakanja
and Voro. As previously, production in both years will be
weighted towards the second half of the year due
to seasonality.
Our focus remains on health and safety, where we are yet
to achieve our principal goal of zero fatalities at all operations.
In 2018, we will continue implementing a geomechanical
management system that will help eliminate accidents
related to mining processes.
I
S
T
R
A
T
E
G
C
R
E
P
O
R
T
G
O
V
E
R
N
A
N
C
E
I
I
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
A
P
P
E
N
D
C
E
S
I
Ore reserves reconciliation
(GE Moz)
19.8
0.05
-1.6
1.2
1.4
20.9
Vitaly Savchenko
Chief Operating Officer
30
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
31
Ore reserves
01.01.2017
Gold/silver price
ratio change
Depletion
Revaluation
Initial reserve
estimates
Ore reserves
01.01.2018
OPERATING REVIEW
OPERATING ASSETS
DUKAT
RUSSIA’S LARGEST SILVER MINE
AND OUR CORE OPERATION
Mines1
1 Arylakh
2 Lunnoye
3 Nachalny-2
4 Dukat
5 Goltsovoye
6 Perevalnoye
Processing
plants
Omsukchan
(flotation/
gravity)
Lunnoye
(cyanide
leaching and
Merrill-Crowe)
+ Town
1
2
+
6
4
3
Omsukchan
5
Magadan
+
LOCATION
Magadan Region, Russia
MANAGING DIRECTOR
Mikhail Egorov
EMPLOYEES
1,936
MINING
Underground
PROCESSING
2.0 Mtpa flotation
(Omsukchan), 450 Ktpa
Merrill-Crowe (Lunnoye)
PRODUCTION START DATE
2000
LIFE OF MINE
2023 (Lunnoye),
2023 (Dukat)
1 Processing plants and the mines feeding them are marked in
the same colour.
3rd
largest world primary
silver mine2
2.4 Mt
Ore processed
(+3%)
22.5 Moz
2017 silver production
US$8.2/SE oz
Total cash cost
(2016: US$6.4/SE oz)
Despite a moderate scheduled decrease in production driven by
grade profile, Dukat continues to be the major contributor to EBITDA
and free cash flow. In 2017, the hub delivered on our targets and
produced 22.5 Moz of silver.
Mining
The amount of ore mined at the Dukat hub in 2017 increased by
6% year-on-year to 2.4 Mt, and underground development was
up 17% year-on-year at 54 km.
At Dukat, for the third consecutive year, the volume of ore mined
remained virtually unchanged at a record level of 1,605 Kt.
Underground development decreased by 4% to 34 km. Average
silver grade decreased by 19% to 306 g/t in accordance with the
mine plan. The effectiveness of underground works was enhanced
thanks to the increased productivity of drilling rigs.
At Goltsovoye, mining volumes increased by 4% to 190 Kt,
while underground development was up 15%, mainly due to the
continued increase in mining works at deep levels and flank areas.
Average silver grade remained almost unchanged at 366 g/t.
At Lunnoye, a record amount of ore was mined and processed in
2017 (up 27% year-on-year) as stoping continued at the new zone
5 vein. Lower silver grade of 352 g/t, a 23% decrease compared
with the prior period, is mostly attributable to the depletion of the
high-grade portion of zone 7.
There has been good progress with the underground development
at two brownfield sites, Perevalnoye and Terem, with both ore
sources expected to make significant contributions to the feed
at the Omsukchan concentrator in 2018.
Processing and production
Full-year silver production at the Dukat hub was 22.5 Moz, a decrease
of 12% over the previous year, as higher processing volumes and
improved recoveries did not offset declining grades. Lower grades
in the feed were partially the result of reduced cut-off grades, which
take into account lower mining costs, lower treatment charges and
higher recoveries.
At the same time, the Dukat concentrator set a new throughput
record, processing 1,979 Kt of ore in 2017, while maintaining stable
recoveries (86.3% for gold and a 4% increase for silver to 88.6%)
on the back of continuous improvement in the ore quality control
system, based on geological and process mapping. Average grades
decreased by 26% for gold to 0.4 g/t and by 14% for silver to 321 g/t.
Gold and silver production decreased by 23% and 11%, respectively,
to 24.2 Koz of gold and 17.7 Moz of silver.
The Lunnoye plant delivered a robust set of results: ore processed
grew by 6% year-on-year to 460 Kt, while average gold and silver
grades were down 17% and 19%, respectively. Average recoveries
were strong at 90.3% for gold and 92.8% for silver. Annual
production at Lunnoye was 4.8 Moz of silver, down 14% year-on-
year due to the change in grade profile.
DUKAT CONTINUED
Resources and exploration
At the Dukat hub, the Company achieved a 70% increase in
additional mineral resources. This success was primarily driven
by additional exploration at the deeper levels of the Lunnoye deposit
and the discovery of previously unknown veins at the Dukat flanks.
In 2018, prospecting activities are set to continue at the northern
and eastern flanks of Dukat.
At the Primorskoye property, 6.9 km of exploration drilling was
completed at ore zones 1 and 3 with a goal to trace ore bodies
along the strike and at depth. In 2018, the Company intends to
conduct further prospecting activities at other ore zones with the
goal to increase the resource base of the deposit and delineate
ore bodies in zones 1 and 3.
At Perevalnoye, exploration continued by in-fill drilling from the
underground with trial ore stoping expected to lead to a material
upgrade in resources at the deposit.
PRIORITIES FOR 2018
> Extending the life-of-mine to 2027 while maintaining stable
costs: start of production from high-grade satellite deposits
(Terem and Perevalnoye) and step-out exploration at deeper
flanks of Dukat and Lunnoye.
> Slowing down grade erosion and production decline.
> Improving processing capacity utilisation.
> Commissioning a second thickener at Omsukchan concentrator.
> The reconstruction of the tailing dump #3.
OMOLON
OUR MOST VERSATILE PROCESSING HUB:
LOW-CAPITAL INTENSITY WITH MULTIPLE
SOURCES OF HIGH-GRADE FEEDSTOCK
Mines1
1
Birkachan
2 Tsokol
3 Oroch
4 Sopka
5 Olcha
Processing
plants
Kubaka
(CIL,
Merrill-Crowe)
Lunnoye
Birkachan
(heap leach)
+ Town
1
2
5
3
4
+
Evensk
+
+
Magadan +
LOCATION
Magadan Region, Russia
MANAGING DIRECTOR
Vladimir Bloshkin
EMPLOYEES
1,012
MINING
Open-pit/underground
PROCESSING
850 Ktpa CIP/
Merrill-Crowe (Kubaka)
PRODUCTION START DATE
2010
LIFE OF MINE
2024
1 Processing plants and the mines feeding them are marked in
the same colour.
202 Koz
GE production
(+19%)
US$652/GE oz
Total cash costs/GE oz
(2016: US$503/GE oz)
6.7 g/t
US$120m
Average gold grade in ore
processed at Kubaka (+13%)
Adjusted EBITDA
(2016: US$116m)
32
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
2 According to World Silver Survey 2017 by the Silver Institute.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
33
OPERATING REVIEW
OPERATING ASSETS
OMOLON CONTINUED
Omolon delivered strong operating and financial performance in
2017, with gold equivalent production increasing by 19% to 202 Koz.
Adjusted EBITDA increased by 3% to US$120 million, despite the
appreciation of Russian Rouble, which negatively affected total
cash costs.
Mining
In 2017, the total ore mined decreased by 69% to 692 Kt, driven
mainly by the completion of open-pit mining at Oroch and the
temporary suspension of open-pit mining at Birkachan due to
the availability of sufficient historic ore stockpiles. Underground
development almost doubled to 11.5 km on the back of ramping
up underground mining at Birkachan and Tsokol.
At Sopka, open-pit mining is proceeding as planned, with 261 Kt
of mined ore to be transported to the Kubaka mill for processing in
Q1 2018. Open-pit mining at Sopka is expected to wind down in
Q2 2018.
At Tsokol, underground development continued with 153 Kt of ore
mined and a slight decrease in the average gold grade to 10.4 g/t.
At Birkachan, ore mined decreased by 88% to 114 Kt, as open-pit
activities are now complete, with personnel transferred to Olcha
where the first ore stopes were extracted and development is
in full swing.
Processing
Omolon delivered a robust set of production results for the year,
with gold equivalent production up 19% year-on-year at 202 Koz.
The increase is attributable to significantly improved gold grades
and recovery levels at the Kubaka processing plant due to the
continuing increase in the levels of higher-grade ore from the
Tsokol and Birkachan underground mines.
Throughput at the Kubaka mill remained stable, with 858 Kt of ore
processed during 2017 (up 2% year-on-year). Recoveries increased
by 2% to 94.2% for gold and decreased by 2% to 83.9% for silver.
Average grades processed were up 13% for gold at 6.7 g/t and
remained stable for silver at 90 g/t.
In Q2 2018, we plan to increase the pace of heap leaching
at Birkachan; in 2017 a total 459 Kt of ore were stacked and
the leaching resumed.
Exploration
At Omolon, the completion of initial ore reserve estimates for new
veins at Birkachan and Sopka open-pit have largely offset reserve
depletion in 2017.
At Irbychan, exploration has previously focused on in-fill drilling at
the Central and Northern ore zones. In 2018, the focus will shift to
the Eastern zone.
At Yolochka, 6.7 km of in-fill drilling was completed at the
Central and Southern zones. Both zones remain open at depth.
The Company also completed prospecting drilling at the flanks
and the Promezhutochnaya zone.
At Nevenrekan, exploration activities were previously focused on
in-fill drilling at zone 2, with several high-grade intercepts confirming
potential for profitable underground mining. As a result of
prospecting drilling at ore zone 1 new high-grade ore zones were
discovered. In 2018, the Company plans to complete regular drilling
at zones 1 and 5 as well as surveying activities at the flanks of
the deposit.
PRIORITIES FOR 2018
> Advancing life-of-mine extension options.
> Continued resource-and-reserve accretion at Olcha, Sopka,
Nevenrekan, Yolochka.
> The resumption of and achievement of target productivity
at Birkachan heap leaching.
34
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
AMURSK POX
UNIQUE PROCESSING CENTRE FOR
REFRACTORY GOLD CONCENTRATES
IN THE RUSSIAN FAR EAST
Mines
1 Albazino
2 Mayskoye
Processing
plants
Amursk POX
(POX +
cyanidation)
+ Town
Pevek
2
1
Khabarovsk
+
Nakhodka
LOCATION
Khabarovsk Territory,
Russia
MANAGING DIRECTOR
Vadim Kipot
EMPLOYEES
431
PROCESSING
500 tpd POX +
cyanidation
PRODUCTION START DATE
2011
280 Koz
96.4%
Total hub gold production
(+3%)
POX recovery
(+2%)
160 Kt
Concentrate processed
(-3%)
Expansion of the targets for Amursk POX plant and the doubling in
the current POX capacity, in terms of sulphur oxidation, will enable
Polymetal to retain approximately 50% of Kyzyl concentrate for
in-house treatment, as opposed to a third-party offtake. This is
expected to improve effective gold recovery from concentrate,
as well as bringing down the processing and transportation costs.
2017 highlights
In 2017, the Amursk POX plant worked steadily at design
parameters. Concentrate processed remained stable at 160 Kt
(2016: 166 Kt), while total gold production amounted to 280 Koz
of gold equivalent (up 3% year-on-year), thanks to the optimal
processing of feedstock mix and despite two maintenance
shutdowns (one for seven weeks), which were required to
install equipment needed for the expansion.
Concentrate processed from Albazino was 154 Kt (up 3% year-on-
year), while the average gold grade increased by 12% year-on-year
to 58.3 g/t. Concentrate processed from Mayskoye decreased by
63% to 6 Kt, as the capacity at Amursk POX was taken up by
higher-grade and higher-margin third-party material. The average
grade was 49.6 g/t (down 10% year-on-year). Recoveries from both
Albazino and Mayskoye concentrate exceeded the design levels at
96.4% and 96.2%, respectively, and a record recovery level of
97.2% was achieved in Q4 2017.
Amursk POX expansion
The debottlenecking project at the Amursk POX is progressing
on schedule. The oxygen plant has arrived on site and equipment
installation is under way, including new filter presses for tails and
gypsum sediment. In 2017, the construction, commissioning and
launch of new desorption section and control filtration were
completed. The autoclave oxidation section was modernised.
Construction of the filtration sections of the leaching tails and
oxygen station No. 2 have also been completed.
Polymetal plans to ramp-up the debottlenecked POX plant in
the second half of 2018, just in time to take first feed from the
Kyzyl concentrator.
Polymetal is continuing to undertake extensive metallurgical
testwork and evaluate its ability to use high-temperature (230-240C)
POX technology to process high-carbon Kyzyl concentrate and
third-party feedstocks. The project will enable Polymetal to materially
improve the economics of refractory gold projects by increasing gold
recovery from concentrates and bringing down processing and
transportation costs, and will also strengthen Polymetal’s
commercial position on the concentrate market vis-à-vis offtakers.
A decision on the construction of the second POX is expected in late
2018, in conjunction with the ramp-up of Kyzyl and an investment
decision on Nezhda project.
PRIORITIES FOR 2018
> Completion of the POX debottlenecking project in Q3 2018.
> Processing of Kyzyl concentrate at the designed recovery
of 96%.
> Processing of all concentrate from Albazino and loaded
carbon from the Mayskoye float-leach circuit.
> Complete feasibility study for second POX line.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
35
OPERATING REVIEW
OPERATING ASSETS
ALBAZINO
HIGH-GRADE PROFILE AND
SOLID PERFORMANCE
Mines
1 Albazino
Processing
plants
Albazino
concentrator
followed by
Amursk POX
(POX +
cyanidation)
+ Town
Sea port
Kherpuchi
Nikolaevsk-
on-Amur
+
+
+1
Oglongi
+
Komsomolsk-on-Amur
+
Khabarovsk
+
Vanino
+
LOCATION
Khabarovsk Territory,
Russia
MANAGING DIRECTOR
Alexei Sharabarin
EMPLOYEES
1,139
MINING
Open-pit/underground
PROCESSING
1.6 Mtpa flotation
PRODUCTION START DATE
2011
LIFE OF MINE
2031
269 Koz
Total gold production
(+10%)
US$157m
Adjusted EBITDA
(2016: US$167 million)
154 Kt
1,725 Kt
Concentrate processed at
the Amursk POX (+3%)
Ore processed
(2016: 1,654 Kt)
36
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
In 2017, Albazino demonstrated an excellent operating performance
and achieved record gold production of 268.5 Koz, up 10% year-on-
year. This was driven by increased recovery levels and higher hourly
productivity, as well as increased volumes of third-party material
processing at the Amursk POX.
Mining
At the Albazino underground mine, productivity continued to
improve with full transition to partially consolidated backfill in primary
stopes. There was a substantial improvement in both the extent of
underground development and the volume of ore mined, up year-
on-year by 33% and 20%, respectively. However, the amount of
ore mined from the open-pit decreased 5% year-on-year to 1,512 Kt.
As a result, the total amount of ore mined was 1,832 Kt and
remained almost flat year-on-year.
Open-pit mining at the Olga pit was completed in Q4 with
all the equipment now moved to the Ekaterina-1 pit.
Processing
Ore processed grew by 4% year-on-year to 1,725 Kt, while
average gold grade in ore processed declined by 3% to 4.9 g/t
in line with the mine plan grade profile. Gold recoveries at the
Albazino concentrator were 87.5% while concentrate yield was 8%.
Incremental continuous improvements in throughput and recovery
at the Albazino concentrator ensured production growth, despite
the decrease in grade. In 2017, the concentrate loading station was
upgraded and the third stage of the tailing dump was commissioned.
Concentrate of 141 Kt with an average grade of 52.3 g/t was
produced, up 3% year-on-year. All concentrate was processed
at the Amursk POX plant. The total gold production for 2017 was
269 Koz, a 10% increase on the previous year, driven mostly by
improved recoveries at the Amursk POX plant and processing
of third-party material.
Exploration and development
In 2017, successful exploration results were achieved at Albazino.
Ore reserves increased by 12% year-on-year to 2.3 Moz GE, driven
by the initial ore reserve estimate for Farida open pit (169 Koz GE)
and Anfisa underground (47 Koz GE).
In 2018, exploration will focus on delineating resources and
estimating mineral resources at new ore zones, namely Tatiana
and Kuyan.
PRIORITIES FOR 2018
> Acceleration of satellite open-pit development (Ekaterina-2).
> Continued resource-to-reserve conversion
in the underground mine.
> Continued near-mine exploration.
> Further enhancing the design of the SAG mill liners, further
increasing throughput.
> Stable production profile with an increased contribution from
the underground mine.
MAYSKOYE
LONG-LIFE HIGH-GRADE REFRACTORY
GOLD MINE
Mines1
1 Mayskoye
Processing
plants
Amursk POX
(POX +
cyanidation)
Mayskoye
concentration
+ Town
Sea port
Pevek
1
Khabarovsk
+
Nakhodka
LOCATION
Chukotka, Russia
MANAGING DIRECTOR
Evgeniy Tsybin
EMPLOYEES
1,029
MINING
Open-pit/underground
PROCESSING
850 Ktpa flotation,
offtake/Amursk POX
PRODUCTION START DATE
2013
LIFE OF MINE
2034 (based on
Reserves and
Resources)
1 Processing plants and the mines feeding them are
marked in the same colour.
124 Koz
Total gold production
(+7%)
96.2%
POX recovery
(2016: 94.4%)
711 Kt
Ore processed
incl. leaching (-7%)
6.6 g/t
Average reserve grade
In 2017, Mayskoye delivered a 124 Koz contribution to the Group’s
total production, a 7% increase compared with 2016. Production
was entirely from concentrate offtake to China since the POX
capacity was taken by higher-margin, third-party material. We have
commenced development of the combined float-leach circuit,
which is expected to start operation in the first half of 2018,
bringing the oxide ore from the open-pit into production.
Mining
Total ore mined increased by 29% to 944 Kt, following the
commencement of open-pit mining, which contributed 225 Kt.
The average grade mined was 6.3 g/t, up 20% year-on-year,
driven by higher grades in the open-pit.
Open-pit mining was slowed-down during the winter months,
Additional metallurgical testing was conducted in order to try and
combat the low carbon-in-pulp (CIP) recoveries, caused by intense
preg-robbing in the near-surface ore. It will resume in Q1 2018.
Geological and technological mapping of oxidised and transition
ores in zones 5 and 6 were carried out for a further estimation of
ore reserves and planning of mining works (both open-pit
and underground).
Processing
In 2017, ore processed at the flotation circuit decreased by 15%
year-on-year to 644 Kt, as planned, with an average gold grade
of 5.4 g/t (2016: 5.3 g/t). The recoveries were stable at 87.7%.
The gold in concentrate produced decreased by 16% year-on-year
and comprised 96 Koz, reflecting the lower volumes of ore
processed at the circuit.
Ore processed at the leaching circuit was 67 Kt, with an average
grade of 9.9 g/t contributing 11 Koz of gold produced. After low
carbon-in-leach (CIL) recoveries in the first half of 2017 at the
crown pillar project, additional and extensive metallurgical testing
was undertaken. As a result, future oxide-ore processing will be
through a combined float-leach circuit, with flotation removing the
bulk of preg-robbing organic carbon. This circuit will commence
operation in May 2018.
Total gold production at Mayskoye increased 7% year-on-year
to 124 Koz. Production was solely from offtake sales to China as
the capacity at Amursk POX was taken up by higher-grade and
higher-margin third-party material.
Exploration
At Mayskoye, 610 Koz of gold were added to mineral resources
following a 33 km drilling campaign in 2017. This brings total
additional mineral resources for Mayskoye to 3.8 Moz of gold,
up 19% year-on-year.
PRIORITIES FOR 2018
> Recommissioning of the upgraded flowsheet to achieve
design recovery levels for oxidised ore from the open-pit.
> Maintaining safety, productivity and grade
control underground.
> Accelerating resource-to-reserve conversion,
both in the open-pit and underground.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
37
OPERATING REVIEW
OPERATING ASSETS
OKHOTSK
DELIVERING FULL POTENTIAL FROM
SVETLOYE HEAP LEACH
Mines1
1 Avlayakan
2 Svetloye
Processing
plants
Khakanja
Svetloye
Sea port
Okhotsk
Svetloye
2
Avlayakan
1
Kiran
LOCATION
Khabarovsk Territory,
Russia
MANAGING DIRECTOR
Konstantin Lemanov
EMPLOYEES
1,209 (including Svetloye)
MINING
Open-pit/underground
PROCESSING
600 Ktpa CIL and
Merrill-Crowe circuits,
1,000 Ktpa HL
at Svetloye
PRODUCTION START DATE
2003
LIFE OF MINE
2023
1 Processing plants and the mines feeding them are marked in the
same colour.
1,676 Kt
US$159m
Total ore processed
(including heap leach)
(+59%)
217 Koz
GE production
(+65%)
Adjusted EBITDA,
incl. Svetloye (+79%)
US$313/GE oz
Svetloye HL TCC
(-25%)
38
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Mining
The annual amount of ore mined at the Okhotsk hub decreased
by 6% in 2017 to 1,383 Kt.
Svetloye became the major source of ore for processing: 1,246 Kt of
ore were mined with gold grade in ore stacked of 4.4 g/t. Svetloye is
a seasonal operation and shuts down for the winter, with operations
resuming in Q2 2018.
Avlayakan underground mine operated at design capacity and
produced 137 Kt of ore in 2017, down 3% compared with 2016, and
with average grades in ore mined of 15.9 g/t gold and 147 g/t silver,
almost flat year-on-year. Life-of-mine at Avlayakan was extended to
the second half of 2018 on the back of positive down-dip
exploration results.
Processing and production
At Okhotsk, gold production grew by an impressive 71% year-on-year
to 196 Koz. Growth was largely driven by a significant contribution
from the fully ramped-up Svetloye heap leach operation. Silver
production for the year grew by 25% to 1.7 Moz as more third-party
ore, with better metallurgical properties, was introduced to the feed
at the Khakanja plant in 2017.
Svetloye heap leach operation was ramped-up to full capacity
significantly contributing to the Group’s strong performance.
The amount of ore stacked was 1,054 Kt and GE production at
the heap leach amounted to 106 Koz of gold produced, compared
with 23 Koz in 2016, and is a first-class result just one year after
launch. A study is being conducted on the feasibility of all-year-
round leaching of the heap leaching pads, using a heating option.
At Khakanja CIP plant, processing volumes remained flat at 623 Kt,
with feed mainly drawn from high-grade Avlayakan ore. Gold
equivalent production during 2017 decreased by 3% as expected,
since the historic reserves are being depleted and the plant is
mainly focused on stockpile and third-party material processing.
Resources and exploration
48.0 km of exploration drilling has been completed in the Okhotsk
region in 2017, a 70% increase compared with the previous year.
At Levoberezhny (35 km from Svetloye), in-fill drilling confirmed the
continuity of mineralisation and the option of using heap leaching
to extract gold.
12.8 km were drilled at Kundumi within the Central and Western ore
zones resulted in a material increase in mineral resources. In 2018,
the Company plans to undertake an additional 15 km of core
drilling targeting both resource-to-reserve conversion and further
resource growth.
At Khotorchan and Gyrbykan, multiple new veins have been
discovered during the year. In 2018, Polymetal plans to complete
resource definition drilling and start open-pit mining on previously
discovered veins.
PRIORITIES FOR 2018
> Continued exploration at smaller high-grade satellite deposits,
potentially providing feedstock at Khakanja.
> Evaluation of strategic options for the Khakanja plant and
associated smaller deposits.
> Debottlenecking heap leach stacking capacity at Svetloye,
given the significant expansion in ore reserves following the
positive-grade reconciliation after in-fill drilling and positive
exploration results on the flanks.
> Modernisation of the aspiration system in the ore preparation
complex and the commissioning of the drying section
at Svetloye.
VORO
SUSTAINING FREE CASH FLOW
AND LOW CASH COSTS
Mines
1 Voro
Processing
plants
Voro
+ Town
+
+1
Karpinsk
Serov
+
Nizhny Tagil
+
Ekaterinburg
LOCATION
Sverdlovsk Region, Russia
MANAGING DIRECTOR
Boris Balykov
EMPLOYEES
830
MINING
Open-pit
PROCESSING
950 Ktpa CIP circuit,
1,000 Ktpa HL with CIC
PRODUCTION START DATE
2000 (heap leach),
2005 (CIP)
LIFE OF MINE
2028 (CIP)
118 Koz
Gold production
(-7%)
US$383/GE oz
Total cash cost
(2016: US$322/GE oz)
1,002 Kt
63%
Ore processed at CIP
(2016: 1,001 Kt)
Adjusted EBITDA margin
(2016: 72%)
Voro is one of the oldest assets in the portfolio, but continues to
be a key cash-flow contributor with an attractive cash-cost profile.
In 2017, Voro delivered stable operating performance in line with
the mine plan.
Mining
Mining is currently focused on the primary ore, while oxide ore
is nearing depletion. In 2017, total volumes of ore mined at Voro
increased by 19% to 1,553 Kt. Average grades for primary and
oxidised ore were down 16% and 24% year-on-year, respectively.
Optimisation of the cycle time of the mining fleet was undertaken,
enabling an increase in productivity from dump trucks.
Processing and production
Total gold production at Voro decreased by 7% year-on-year to
118 Koz, primarily driven by anticipated lower head grades at both
the heap leach and CIP operations. Voro continues to deliver a
stable performance in line with the mine plan.
In 2017, the CIP plant delivered throughput of 1,002 Kt of
ore processed, which remained relatively unchanged over the
previous year, and produced 102 Koz of gold, down 8% year-on-
year. The average gold grade in ore processed was 4.0 g/t, a 5%
decrease from 2016. 2018 is expected to be the last year of heap
leaching at Voro operations.
Resources and exploration
In 2017, the Company increased Voro’s mineral resources by 28%
to 1.0 Moz GE with the discovery of a new gold deposit at Pesherny
(30 km from the CIP plant). An initial resource estimate comprised
449 Koz of gold at an average grade of 6.7 g/t. In 2018, we plan to
continue exploring this highly promising property that may significantly
extend the life-of-mine and halt production decline at Voro.
At Saum, mineral resource grew to reach 67.4 Kt of copper
equivalent at an average grade of 2.9%. In 2018, we plan to
complete the feasibility study for the property.
At the Voro open pit, exploration focused on the assessment of
mineralisation below the ultimate pit floor. Mineral resources grew by
86 Koz of gold equivalent at 2.6 g/t. The results suggest feasibility of
underground mining after open-pit mining is completed. Ore bodies
are open along strike with drilling to continue in 2018.
PRIORITIES FOR 2018
> Stable production at the CIP plant in the mid-term.
> Reserve estimate for satellite deposits Saum and
Tamunier in the first half of 2018.
> Feasibility study for the joint development of Saum,
North Kaluga and Tamunier, with an upgrade of the
existingCIP plant to include a flotation circuit.
> Continue regional exploration and evaluation of bolt-on
M&A opportunities.
POLYMETAL INTERNATIONAL PLC
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39
OPERATING REVIEW
OPERATING ASSETS
VARVARA
QUICK RAMP-UP OF NEWLY ACQUIRED
KOMAR DELIVERING EXCELLENT
PERFORMANCE
3
+
+ Kostanay
4
1
2
Mines
1 Varvara
2 Komar
3 Maminskoye1
4 Tarutin
Processing
plants
Varvara
+ Town
1 Maminskoye is located in the Sverdlovsk Region of Russia.
The concept of the project assumes transportaion of ore mined
by rail to Varvara and further processing to doré.
LOCATION
North-western
Kazakhstan
MANAGING DIRECTOR
Igor Nikolishin
EMPLOYEES
1,261 (including Komar)
MINING
Open-pit
PROCESSING
Leaching for gold ore
(3.0 Mtpa)/flotation for
copper ore (1.0 Mtpa)
PRODUCTION START DATE
2007 (by Polymetal
since 2009)
LIFE OF MINE
2032
130 Koz
US$701/GE oz
GE production
(+54%)
Total cash cost
(-10%)
3,279 Kt
Total ore processed
(+5%)
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POLYMETAL INTERNATIONAL PLC
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Komar provided strong support to Varvara operations: almost 2 Mt of
Komar ore was mined and railed to the Varvara hub. This resulted in a
record GE production of 130 Koz, up 54% year-on-year.
Mining
In 2017, mining volumes were almost flat year-on-year at 3,243 Kt,
while we experienced a slight decrease in float ore average grade to
1.0 g/t (down 15% compared with 2016) and 48% increase in Komar
leach ore average grade to 1.4 (up 48% compared with 2016).
Processing and production
In 2017, Varvara produced a record 130 GE Koz, up 54% year-on-
year. Growth was driven by increased processing volumes and
substantially improved grades at both flotation and leaching circuits
as more high-grade ore was delivered by rail from Komar, an
operation acquired by Polymetal in August 2016 and quickly
ramped-up to full productivity.
At the leaching circuit, 2,890 Kt was processed in 2017 (up 5%
year-on-year) while the flotation circuit processed 389 Kt (up 5%
year-on-year).
In an effort to further streamline Komar ore logistics, a new railway
spur at Komar has been commissioned. It is adjacent to the open pit
and will enable further reductions in ore haulage costs.
In 2018, Polymetal aims to transport more than 2 Mt of Komar ore to
Varvara by rail, a key element in plans to further increase production
levels at the operation. The additional Komar ore will displace the
lower-grade material from the Varvara deposit and, consequently,
increase production and result in lower costs at the Varvara
processing hub.
Resources and exploration
At Komar, 30 km of exploration drilling at the central and southern
zones was completed in 2017, driving a significant increase in ore
reserves of 524 Koz of gold (+49%). The upgraded estimate
represents a significant increase over the previous estimate, up 60%
in tonnage and 57% in gold content, further extending the Varvara
hub mine life by three years to 2032. The reserve expansion,
increased processing capacity and associated economies of scale
have far outstripped our expectations at the time of the acquisition.
In 2018, exploration activities are set to continue at the northern and
south-eastern parts of the deposit.
12.1 km of drilling was completed at Elevator – a new prospect that is
situated 8 km north-east of the Komar deposit. New thick ore bodies
were discovered below the previously mined oxidised ore. Exploration
will continue in 2018.
PRIORITIES FOR 2018
> Optimisation of the long-term mine plan for the hub as a whole
with evaluation of strategic options for assets on the Russian
side of the border (Tarutin, Maminskoye).
> Increase gold production with more than 2 Mt of ore railed from
Komar open-pit mine to Varvara in 2018.
> Continued active presence on the market for third-party ore.
KAPAN
CONTINUED IMPROVEMENT AT OUR
FIRST ARMENIAN OPERATION
Mines
1 Kapan
2 Lichkvaz
Processing
plants
Kapan
+ Town
+
Yerevan
+
Kapan
+
1
Lichkvaz
+
2
LOCATION
Kapan province, Armenia
MANAGING DIRECTOR
Dmitry Ushkov
EMPLOYEES
1,043
MINING
Underground
PROCESSING
750 Ktpa flotation
concentration followed
by offtake
PRODUCTION START DATE
1950s (by Polymetal
since 2016)
LIFE OF MINE
2023
50 Koz
GE production
(2016: 26 Koz)
530 Kt
Ore processed
(+81%)
4.2 GE g/t
Ore reserves average grade
692 GE Koz
Initial JORC-compliant
reserve estimate
In 2017, Kapan delivered a strong operational performance driven
by increased processing volumes and improved head grades on
the back of ongoing enhancement measures to debottleneck the
underground mine and improve recovery levels.
Mining
At Kapan mine, underground development grew by 78% year-on-
year to 16.9 km and the amount of ore mined was 527 Kt compared
with 287 Kt in 2016. Average GE grade in ore mined was 2.7 g/t (an
increase of 7% year-on-year). In 2017, a comprehensive technical
re-equipping of the mine and the renewal of mining fleet were
carried out with already visible results in the increased underground
mining productivity. The projects for the reconstruction of the mine
ventilation system and construction of an underground water
pumping station have been started. While the upgrade of the
mining fleet was largely completed in 2017, the increase in
productivity at the underground mine is taking longer to achieve
than expected.
At Lichkvaz, preparatory activities for underground mining are
currently underway and are aimed at widening the underground
tunnels for consecutive underground and stope development later
this year.
Processing and production
During 2017, we undertook measures to debottleneck the
processing plant and improve recovery levels. This included the
construction of an ore blending warehouse, the overhaul of the
copper circuit crusher, vacuum filter and thickener, and the
installation of a vibrating griddle at the central crushing section.
Ore processed was 530 Kt, up 81% year-on year. The recoveries
increased from the previous year to 83.6% for gold and 83.0% for
silver. GE production at Kapan comprised a record 50 Koz on the
back of increased processing volumes and improved head grades.
Reserves and resources
At Kapan, Polymetal prepared an initial JORC-compliant reserve
estimate as at 1 January 2018, which comprised 558 Koz GE at
an average grade of 4.3 g/t. Additional mineral resources were
estimated at 1,632 Koz GE at an average grade of 6.1 g/t.
At Lichkvaz (70 km from Kapan) an initial JORC-compliant reserve
estimate was prepared by Polymetal and comprised 134 Koz GE at
3.9 g/t, while additional mineral resources amounted to 257 Koz GE
at 5.0 g/t.
PRIORITIES FOR 2018
> Further improve measures aimed at debottlenecking
the underground mine.
> Continue active exploration activities in the region.
> Production growth in 2018 driven by better utilisation
of processing capacity.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
41
OPERATING REVIEW
GROWTH PROJECTS
KYZYL
MAJOR MEDIUM-TERM GROWTH
DRIVER FOR POLYMETAL
Growth
project
Kyzyl
+ Town
Варвара
Россия
Kazakhstan
Oskemen +
Kyzyl
Китай
LOCATION
Oskemen region,
Kazakhstan
MANAGING DIRECTOR
Yuri Ovchinnikov
EMPLOYEES
691
MINING
Open-pit followed by
underground
PROCESSING
Kyzyl flotation plant
(1.8 Mtpa), followed
by POX or offtake
PRODUCTION START DATE
Q3 2018
LIFE OF MINE
2039
7.3 Moz
Gold reserves
7.7 g/t
Average reserve grade
22 years
33%
Estimated life of mine
(Bakyrchik)
Internal rate of return
Kyzyl is one of the best development-stage gold projects in the
world and is on track to produce its first concentrate in Q3 2018.
It offers a perfect fit with Polymetal’s core competencies: project
development from scratch, open-pit mining, treating refractory
materials in-house (through Amursk POX plant) and trading
concentrates with offtakers.
Mining
At Kyzyl, stripping volumes increased significantly to 48.5 Mt,
compared with 22.4 Mt in 2016. The first ore was mined from
the open-pit ahead of schedule in January 2018.
Development
Construction activities are in line with the project schedule.
All external electrical infrastructures (substation, power lines,
switchboxes) are fully operational. The tailings storage facility
has been completed. At the ore preparation complex, the crusher,
conveyor gallery and apron feeder are in place. Foundations for
the mills and other processing equipment have been completed,
together with the tunnel gallery leading from the crusher to the
main concentrator building. At the processing facility, construction
activities are now focused on the installation of smaller technological
equipment. Work has started on electrical wiring, ventilation ducting
and installation of process control equipment.
Kyzyl remains on track to produce the first concentrate in Q3 2018.
There is strong demand for concentrate from multiple offtakers,
with the first contract signed in Q1 2018. The commercial terms of
the offtake agreement compare favourably with management’s
original expectations, with the percentage of payable gold in
concentrate in line with the project feasibility study and also
treatment charges better than those for Mayskoye concentrate.
Exploration
At Bakyrchik, 49 holes totalling 8.3 km were drilled at the eastern
flank of the deposit with results indicating strong potential to
increase open-pit reserves. In-fill drilling leading to an updated
ore reserve estimate is planned for 2018.
PRIORITIES FOR 2018
> Further exploration of identified ore bodies, together with
an ore reserve estimate.
> Commissioning of an accommodation camp, engineering
networks and facilities, warehouse facilities and a heating
and power complex in Q1 2018.
> Commissioning of the processing plant and production
of the first concentrate in Q3 2018.
KYZYL – COMPLETION SCORECARD
PROCESSING PLANT
85%
98%
WATER STORAGE
100%
BOILER
95%
CRUSHER
CRUSHED ORE STORAGE
95%
100%
LABORATORY
ELECTRIC SUBSTATION
100%
Permitting
Engineering
Contracting
Construction
Open pit
100%
100%
100%
100%
Processing plant
100%
100%
100%
85%
External
infrastructure
Internal
infrastructure
100%
100%
100%
100%
100%
100%
100%
95%
Tailings storage
100%
100%
100%
95%
Concentrate offtake
contracts
100%
100%
100%
100%
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ANNUAL REPORT & ACCOUNTS 2017
43
OPERATING REVIEW
GROWTH PROJECTS
NEZHDA1
A WORLD-CLASS DEPOSIT ADVANCING
A PIPELINE OF GROWTH OPPORTUNITIES
Open-pittable reserves (JORC)2
2.0 Moz of GE at 4.0 g/t
Additional resources (JORC)2
8.9 Moz of GE at 5.0 g/t
Life of mine (open-pit)
11 years
Throughput
1,500 Ktpa
PRIORITIES FOR 2018
> Achieve resource-to-reserve conversion to
include the southern flank of ore zone 1 and
smaller mineralised zones.
> Long-lead equipment selection.
> Design documentation development.
> Pre-feasibility study and development decision
in Q4 2018.
Nezhda, Polymetal’s joint venture in Yakutia, is the fourth largest
gold deposit in Russia by GKZ (statutory) reserves and has sizeable
open-pittable reserves, with further resources targeted for
underground operations.
Development
In July 2017, Polymetal secured an option to consolidate 100%
in Nezhda, for the development of the high-grade refractory
gold deposit.
During the year, Polymetal undertook an extensive exploration
campaign: 33.7 km of exploration drilling was completed.
In November 2017. Polymetal reported the initial ore reserve
estimate (JORC) for open-pit mining at ore zone 1, re-affirming
the economic viability of the project and justifying the Company’s
approach of developing the asset by starting it up as an open-pit
with a concentrator on-site, followed by concentrate offtake.
Open-pit ore reserves are estimated at 15.5 Mt of ore with
an average GE grade of 4.0 g/t for 2.0 Moz of GE contained3.
Additional mineral resources are estimated at 55.9 Mt of ore with
an average GE grade of 5.0 g/t for 8.9 Moz of GE contained4.
Nezhda is expected to benefit from low-capital intensity with robust
project economics and has an excellent fit with our core capabilities.
In 2018, Polymetal will focus on upgrading the open-pittable
resources at the southern flank of ore zone 1 and producing the
initial reserve estimate for underground mining at ore zone 56.
The production start date is currently projected to start during the
first half of 2022, subject to a positive investment-and-development
decision in Q4 of 2018, after successful commencement of
production at Kyzyl.
1 Joint venture: Polymetal currently holds an 17.7% stake in the asset with an option
to increase its stake to 100% in 2018.
2 On a 100% basis.
3 350 Koz pro rata at Polymetal’s current ownership of 17.7%.
4 1,576 Koz of GE pro rata at Polymetal’s current ownership of 17.7%.
NEZHDA SIMPLIFIED FLOWSHEET
MINERAL PROCESSING
CONCENTRATES TREATMENT
Grinding
Gravity
concentration
High grade Au
Gravity concentrate (Au GC)
Intensive leaching + POX at
200ºC; processing at operating
Amursk POX plant
Silver flotation
Flotation Ag concentrate
(Ag FC)
Selling concentrates
to consumers
Tails
Gold flotation
Double refractory flotation
Au concentrate (Au FC)
ORE ZONE 1: LONG SECTION
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ANNUAL REPORT & ACCOUNTS 2017
45
AU m* g/t
5-25
100, ceiling
25-50
50-70
70-100
MR estimate for Ore Zone 1
OPERATING REVIEW
EXPLORATION / FURTHER GROWTH OPPORTUNITIES
The Prognoz project fits well with Polymetal’s strategy and has the
potential for a relatively low-capital and fast-development approach
based on open-pit mining and conventional processing.
Development
Prognoz is the largest undeveloped primary silver deposit in
Eurasia with an outstanding exploration upside (only 40% of
known vein outcrop has been tested by drilling). Polymetal acquired
a 5% indirect interest in Prognoz in January 2017, with new terms
negotiated to consolidate a 45% stake in the property for a total
consideration of US$72 million and a deferred consideration
element, payable in Polymetal shares. The transaction is expected
to close in the first half of 2018, subject to receipt of the required
regulatory approvals.
Mineral resources were estimated by Micon in 2009 at
292 Moz at 586 g/t silver, 3% lead, with an additional mineralised
potential of 7.9-18.1 Mt of ore at 469 g/t silver for 119-273 Moz of
silver contained. During the year, Polymetal undertook 37.2 km of
exploration drilling at the deposit to confirm the resources of Main
and Swamp ore zones and established a basic remote-site
infrastructure on the property. The results of the drilling campaign
have largely confirmed the parameters of mineralisation at the
deposit. In 2018, Polymetal intends to expand the scope of drilling
at the property to include South, Quiet and Spring ore zones as
well as trace Main and Swamp ore zones along strike and down dip.
PROGNOZ 1
NEXT GENERATION OF ASSETS –
THE LARGEST UNDEVELOPED PRIMARY
SILVER DEPOSIT IN RUSSIA
Mineral resources
292 Moz of silver at 586 g/t
Expected production
20 Moz of silver per annum
Mining method
Open-pit (5-8 years) followed by underground
Expected throughput
~1 Mtpa
PRIORITIES FOR 2018
> Further upgrade of inferred resources into
indicated resources (Main/South zones).
> 46 km of diamond drilling and extensive
in-house metallurgical test work to increase
inferred reserves at ore zones Quiet/Spring
and flanks Swamp/Main.
> Updated mineral resources estimate and
an external audit according to JORC.
Viksha is Polymetal’s first platinum group metal (PGM) resource,
and one of the largest open-pit PGM deposits in the world
containing roughly 9.5 Moz of palladium equivalent.
Development
Polymetal was granted the 20-year mining licence in 2016, which
covers a project area of 47 km2 and comprises three adjacent zones
— Viksha, Kenti and Shargi — each containing platinum, palladium,
gold and copper mineralisation. The depth of the mineralisation is
just 150 m with an average ore body thickness of 7 m and a total
length of 20 km along the surface.
In 2017, 39.6 km of exploration drilling was completed at the Viksha
deposit in order to gain a better understanding of the geological
controls and enable a future reserve estimate. An updated mineral
resources estimate is expected in Q3 2018.
Pilot plant metallurgical tests are currently being carried out and will
be completed in 2018. Polymetal intends to complete a feasibility
study for an ore reserve estimate for Viksha by Q3 2019. Provided
the development decision based on the feasibility study is positive,
the asset could enter production in 2022.
VIKSHA
OUR FIRST PGM ASSET IN AN
EXCELLENT LOCATION
Combined precious metals mineral resources
213 Mt at 0.98 g/t
Total content
9.5 Moz PdEq
Conventional flotation processing to produce bulk
copper-PGM sulphide concentrate + off-take processing
Open-pit
PRIORITIES FOR 2018
> Updated mineral resources estimate in
Q3 2018.
> Proceeding with a further exploration
programme of the Shargy area.
> Further upgrade of inferred resources into
indicated resources.
> Start of the feasibility study development
and reserves estimate.
LONG SECTION OF MAIN ZONE
CONSISTENT GRAM-METER DOWN DIP (PD EQ * ORE BODY WIDTH)
1 Joint venture: Polymetal currently holds a 5% stake in the asset with new terms
negotiated to consolidate a 45% stake in the property. The transaction is expected
to close in 1H 2018.
AU m* g/t
0-50
50-200
200-1000
1000-2500
2500-5000
5000, ceiling
IND
2017 exploration zone
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ANNUAL REPORT & ACCOUNTS 2017
47
SUSTAINABILITY
Our vision is to generate wealth through
responsible mining and to have a positive
impact on the countries and communities
where we operate.
SUSTAINABILITY HIGHLIGHTS 2017
> Over 100 social service
and child-care institutions
constructed, renovated
and upgraded in
host communities
> Stakeholder engagement
improved: materiality
assessment and personnel
satisfaction studies conducted
> Empowering women: 50% of key
future managers awarded at the
Polymetal scientific conference
are female
20 years of discovering
Over the last two decades, Polymetal has built thriving and
responsible mining business. We attribute our success to our
focus on what is right – conducting business while prioritising
health and safety, minimising our environmental impact,
treating our employees fairly, and supporting local
communities and the economy.
We were delighted to have our work in 2017 recognised
externally. We were ranked 1st among environmentally
responsible metals and mining companies in Russia by the
WWF and the UNDP. We were proud to be shortlisted in the
British IR Magazine Awards for Best ESG Communications
and to win the award for Best Technology at the MINEX
conference for our environmentally friendly underground
electrical vehicles. In addition, we reaffirmed FTSE4Good
membership. Sustainalytics positioned Polymetal in the 93rd
percentile as an outperformer in the industry, ranking us first
among our peers and fourth globally out of the 44 mining
companies included in the report.
20 years prioritising safety
Nothing is more important to us than the safety, health
and well-being of our employees and their families.
Our commitment is to have zero injuries. We regrettably
failed in our care of duty in 2017 with two fatalities.
With the implementation of our Critical Risks Management
System, we have seen a visible improvement in our health
and safety performance, with a 21% reduction in LTIFR
compared with 2016, and a decrease in the number of
fatalities from four to two.
20 years protecting the environment
At every stage of the mining life cycle, we work to avoid,
reduce or mitigate any negative environmental impacts.
In 2017, we completed our energy study, with pilot projects on
solar and wind sources to be launched in 2018. Our energy
management system has been developed in accordance with
ISO standards, and our climate change strategy and carbon
management system is currently under development.
48
POLYMETAL INTERNATIONAL PLC
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20 years valuing employees
Our people are our greatest and most valued asset,
working with enormous commitment to execute our strategy.
We focus on increasing diversity and equal opportunities for
women, decreasing labour turnover and providing training
and development for all employees. In 2017, collective
bargaining agreements were extended at operating mines
and we incorporated our Company’s standards at newly
acquired operations. Health initiatives, such as our
HIV programmes, were also launched the most exposed
operations. 2018 is the 70th anniversary of the Declaration of
Human Rights and we will mark this year with a widespread
training programme on the importance of human rights.
20 years supporting local communities
Our vision is to generate wealth through responsible
mining and to have a positive impact on the countries and
communities where we operate. In 2017, we held inaugural
annual meetings with local residents in our new regions of
operation (Armenia and Yakutia). We signed four additional
socio-economic community agreements in three new regions
of operation. There was a significant increase in employee
involvement in our corporate volunteering activities aimed at
helping communities. We also implemented our Community
Engagement Standards at all our operations and updated
our Social investments and Donations Policy.
The next 20 years
Sustainability is a journey – we have made good progress
and are continuously looking at ways we can improve and
grow our operations. In the years to come, we will continue
to build a thriving and responsible business.
Len Homeniuk
Chairman of the Safety and Sustainability Committee
> Personnel turnover rate
decreased to 5.4%
> Developed climate strategy
and energy management
system and started to use
renewable energy
> LTIFR decreased by 21%
and critical risk management
system implemented
> Top rating in environmental
> Supply chain: new long-term
> Improved corporate charity
responsibility by WWF and UNDP
partnerships and scoring system
and volunteering
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
49
SUSTAINABILITY
Our approach
We are deeply committed to sustainability and continuous
improvement, which translates into safer working conditions
for people, responsible environmental management, support
for our local communities and growing economic value for
our stakeholders. Our sustainability strategy is designed to
meet the principles of the UN Global Compact, to which
we signed up voluntarily in 2009. We comply with the Ten
Principles relating to the environment, labour, human rights
and anti-corruption, and participate in the UN Global
Compact Network Russia.
Alongside our corporate values of dialogue, compliance,
ethical conduct, fairness, stewardship and effectiveness,
the Ten Principles help inform our sustainability policies.
These are agreed by central management and implemented
Group-wide, and we benchmark our performance against
the most up-to-date regulatory requirements through regular
monitoring and auditing.
Sustainability leadership
Ultimate responsibility for sustainability lies with our Board
of Directors. Our Group CEO, Vitaly Nesis, oversees all local
management decisions and processes, and sustainability
performance reviews take place at Board meetings several
times a year. The Board approves sustainability strategy
initiatives and has final sign-off on our sustainability reports.
In 2015, we established our Safety and Sustainability
Committee. This provides support to the Board by
monitoring the Group’s safety record, sustainability
performance and ethical conduct. The Committee oversees
the Company’s overall approach to sustainability, developing
and implementing short and long-term policies and
standards. To address safety, the Committee has been
working hard to implement major improvements to risk
management procedures to achieve our goal of zero
fatalities. The Committee measures the impact of our
initiatives, and helps the Audit and Risk Committee identify,
manage and mitigate sustainability risks.
Stakeholder engagement and materiality
It is important to understand our stakeholders’ perspectives
on sustainability issues. We regularly carry out a ‘materiality
assessment’ in accordance with GRI Standards, engaging
with all stakeholders, including governments, organisations
and local communities, our employees, suppliers, contractors,
investors and financial institutions. This enables us to prioritise
key sustainability risks.
Our 2017 assessment showed that both internal and external
stakeholders care most about economic performance.
Occupational health and safety, and emissions, effluents and
waste are considered high priorities for investors, suppliers
and contractors. However, employees and local residents
ranked these lower. Environmental management and
engaging with local communities were ranked highly by local
communities, investors, offtakers and employees, while
suppliers consider these medium priority issues – suppliers’
top concern is legal compliance. In 2018, we will evaluate the
results of our assessment and ensure all priorities are being
addressed effectively.
Delivering economic sustainability
We deliver long-term value for shareholders, employees,
partners and other stakeholders. Our operations also have
a major positive impact on the economy - we contribute to
regional sustainable economic progress by paying national
and local taxes, employing local people wherever possible,
and finding local or regional suppliers to buy from. This helps
to improve standards of living for residents, further boosts
local economies, and minimises the environmental impact
of our supply chain. We also make social investments,
helping to improve people’s livelihoods and strengthening
our relationships with local communities.
In our supply chain management, we ensure that our
procedures are transparent, conditions are competitive,
partnerships are fair, goods and services are delivered on
time, suppliers are reliable, and all parties are fully compliant
with applicable regulations. We use a business-to-business
e-procurement system, which enables us to expand our list
of contractors and make our processes more transparent
and safe. Wherever possible, we engage local and regional
suppliers to help stimulate regional and national supply
chains and economies.
OUR PERFORMANCE
SUSTAINABILITY GOALS
2017 OUTCOMES
GOVERNANCE
Recognition
Ensure high standards of
corporate governance and
sustainable development
ENVIRONMENT
Reduce our environmental
footprint
EMPLOYEES
Embed robust safety
procedures and safeguard
employee well-being
Build a motivated, loyal and
capable workforce
COMMUNITIES
Maintain strong links and
relationships in the regions
where we operate
ECONOMIC
Ensure financial stability and
shareholder returns
Maintain excellent working
relationships with suppliers
• Headed rankings of environmentally responsible metals and mining companies by WWF and UNDP
• Achieved higher scores from Sustainalytics, MSCI and Robecosam (Dow Jones Sustainability Index)
• Reaffirmed as a FTSE4Good and Euronext Vigeo member
• Conducted comprehensive materiality assessment together with our stakeholders
• Prepared first report for ESAP progress at Kyzyl for EBRD in compliance with IFC requirements
• Intensified our anti-corruption training, increasing total number of people trained and number of seminars
• Updated our Environmental Management System in compliance with updated version of ISO
14001:2015 and prepared for compliance audit in 2018
• Developed our Climate Strategy 2020 and carbon management programmes
• Implemented Energy Management System designed in compliance with ISO
• Developed Mine Closure Standard and Tailing Management System with implementation in 2018
• Completed implementing Critical Risks Management System, safeguarding employee well-being
• Continued Group recertification of safety system in compliance with OHSAS 18001
• Equipped our vehicles and mining fleet with safety tools and devices
• Allocated responsibilities for safety performance to relevant employees and linked remuneration to it
• Marginally decreased staff turnover rate from 5.5% to 5.4%
• Developed new training programmes, procedures and courses; invested US$1,474 thousand in
professional training
• Extended collective bargaining agreement at Voro
• Increased budget for employee financial aid in 2017 twofold
• Started dialogue with communities living close to our new operations and signed 4 cooperation
agreements with them, in addition to the 26 active agreements currently in place
• Invested US$11.7 million in social support and territorial development programmes; provided
assistance to over 100 social care institutions and facilities (schools, kindergartens, health centres,
sports and cultural facilities)
• Supported and promoted charity campaigns together with our 1,000 employees, aimed at helping
vulnerable groups; provided targeted assistance to over 1,000 people
• Increased corporate volunteering, with 54% of personnel willing to participate in events
• Generated a healthy free cash flow of US$143 million; coupled with a strong balance sheet this
translated into cash returns for our investors
• Switched to long-term partnerships by using long-term contracts with suppliers selected in
transparent and open tenders, including local suppliers
• Developed scorecards for supplier assessments to make selection process more targeted and efficient
Pursue further growth
opportunities
• Secured an option to consolidate 100% in Nezhda, its joint venture in Yakutia (Russia) for
development of high-grade refractory gold deposit
• Acquired 5% share of Prognoz, the largest undeveloped primary silver deposit in Russia
• Acquired Primorskoye mine
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51
SUSTAINABILITY
PRIORITISING HEALTH AND SAFETY
We work hard to create a ‘zero harm’ mindset and culture.
This means every employee taking personal responsibility
not only for their own safety, but also for that of the people
around them. We continually promote safety behaviours
to ensure all our people and contractors work in a
safe environment.
We comply fully with health and safety (H&S) legislation
wherever we operate, and strive to meet all relevant
international requirements. We communicate our Health and
Safety Policy (available at www.polymetalinternational.com)
to our employees and stakeholders through information
boards, our internal newspaper and weekly Safety Day
meetings. Every year, we work hard to ensure that our
compliance with external certification OHSAS 18001 is
re-affirmed for our Occupational Health and Safety
Management System (OHSMS).
Our OHSMS guides us in detecting, assessing and mitigating
risks, safeguarding employee health and workplace safety,
and making sure that equipment, buildings and other
structures are used safely. It also ensures that supervision
measures are carefully controlled and that we conduct
internal audits effectively.
Identifying risk management focus areas
Each year, we identify and assess risks across the Group
and create risk maps for all our working processes and
locations. We then develop detailed programmes to help
us reduce these risks.
We recognise risks associated with each of our sites –
in Russia, Kazakhstan and Armenia. Individual units
across our production facilities, plants and mines which have
been classified as ‘hazardous’ are all fully insured. Our primary
focus is on reducing the level of the most significant risks at
our underground operations. We carry out an annual
qualitative hazardous risk assessment, and inform employees
of the results through a range of communication channels.
In 2017, we implemented our new Critical Risks Management
(CRM) system, identifying critical risks for 2018. While the
greatest hazards at our sites are from falling rock, road
transportation accidents and falling (slipping), we have seen
reduced exposure in the past year from these categories.
We have upgraded the risk of fire to ‘critical’; controlling
measures for flammable materials is a particular challenge.
To reduce the potential impact of critical risks at all our
subsidiaries, our CRM includes a health and safety action
plan for all critical risks. For each risk, we have identified five
main directions of impact and at least two preventative
actions for each direction of impact.
We follow a Shift Risk Assessment (SRA) model to raise
employee awareness of workplace dangers, manage risks
promptly and control the accuracy of our risk assessments.
We implement the SRA most rigorously in hazardous
operational areas, for example plant and power supply,
automobile transport and mines.
Health and safety performance
Company
Contractors
0.22
4
1
14
0.19
2
12
2
0.15
6
2
14
3
12
0.37
3
4
0.12
0.28
1
7
5.4
2015
2016
2017
2015
2016
2017
Fatalities
Severe injuries
Minor injuries
LTIFR
Fatalities
Accidents
LTIFR
After thorough research and analysis, we draw
comprehensive conclusions and implement measures to
help prevent re-occurrence. We inform all employees and
contractors of our findings and incorporate new measures
into our health and safety action plan. In addition, we
implement all recommendations by the state authorities.
By implementing our health and safety action plan, we have
been able to successfully transfer to our new CRM system.
Overall, this new system has reduced injury risk and we hope
will prevent repeat of past accidents in the future.
Engaging and training employees on safety
Training and engaging employees and contractors is
essential to achieving our zero-harm goal. Polymetal’s
Human Resources Management System sets out our
procedures for recruitment and assigning employees
with specific skills, as well as for providing training.
We clarify competence requirements for each relevant job
description and heads of business units identify training
needs. We provide training in occupational health, and
industrial, electric and fire safety. We also provide refresher
and training for specific purposes.
In 2017, our employees and contractors attended safety
refresher courses and some of those involved in dangerous
works underwent mandatory safety training. To motivate
employees about the importance of safety, we hold contests
and reward departments that achieve zero occurrences and
incidents. We also publish our ‘safety barometer’ in our
corporate newspaper and on information desks and portals.
Occupational diseases
Three cases of occupational diseases and health difficulties
were recorded in 2017 (two cases of silicosis and one of
hearing loss) at our Dukat mine. Both employees had more
than 15 years’ experience working in hazardous conditions,
including chemicals, cold climate, noise, vibration, dust and
hard physical work. Following these cases, one changed his
role at Polymetal, and the other left the Company.
Workplace accidents
Even when complying with the most stringent international
standards and regulations as well as our safety management
systems, unfortunately accidents can still happen. In recent
years, the number of our underground mining operations
has increased, with more complex and challenging
geomechanical conditions. Despite more employees working
in these conditions, and the increased number of production
sites, we are encouraged that our Lost Time Injury Frequency
Rate (LTIFR) has declined from 0.19 to 0.15. While we are
also encouraged that the overall number of fatalities in our
operations has reduced by 50% in the past year, any fatality
at Polymetal is one too many.
We are deeply concerned with the loss of two colleagues
in 2017: one in a laboratory fire at Varvara, caused by a
concentration of flammable substances, and the other from
fatal injuries incurred from a rock fall during an inspection of
underground mine at Omolon operation. We pay tribute to
these colleagues’ hard work and dedication, and offer our
condolences to their families and friends. We will continue to
support their families financially and, most importantly, will do
everything possible to return to our previous record of zero
fatalities across all our operations.
As a response, we have reviewed our internal safety
guidelines and procedures regarding chemicals storage and
checked our electrical equipment to ensure no further faults.
We are helping our employees to better identify risks and
effectively prevent any incidents in the future.
In 2017, there were also 14 non-fatal accidents in total
(2016:15) across the Group. Most of these injuries
occurred at sites where our CRM system had not been fully
implemented and this is now an urgent priority. Our goal is
for a zero-harm work culture: we will implement additional
measures and devote significant resources to do all we can
to prevent future accidents.
Analysis and response
To help us understand any weaknesses in our safety
performance, we always investigate and analyse all
workplace accidents. We apply the ‘5 Whys?’ principle to
internal investigations, which we undertake in addition to
investigations by state authorities. This process involves
evaluating all possible health and safety risks – from
technological and technical liabilities to employees’
psychological and emotional influences.
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53
SUSTAINABILITY
PROTECTING OUR ENVIRONMENT
Central to running a sustainable business is being mindful of
environmental responsibility. Over the past two decades, our
systems have been designed to protect both human health
and the environment. We ensure that environmental aspects
are taken into consideration when designing, constructing
and operating our mines and processing facilities.
As with all mining companies, our work involves a number
of environmental risks. Our Environmental Policy focuses on
continuous improvement, risk reduction, best practice and
compliance. It also covers managing key environmental
issues, including incident and emergency control and the
use of environmentally-friendly materials.
Our Group-wide Environmental Management System (EMS)
helps us manage these risks, driving resource and energy
efficiency across the business. In 2017, we updated our EMS
to the requirements of international standard ISO 14001:2015.
All our production sites are certified for compliance with ISO
14001:2006, and a certification audit of our updated system
(since the 2015 version) will be held in 2018.
Water management
Efficient water management is a key concern among our
stakeholders and vital to us as a business. We use water
for industrial use, drinking and irrigation, and it is a major
component in ore processing. Fortunately, our production
sites are located in regions where there is no water shortage.
Despite this, we aim to re-use as much water as possible
and in 2017 we recycled 83% of process water (2016: 84%).
We also work with local governments and stakeholders to
protect water security in our host communities, often
providing water and infrastructure through our operations.
Reducing our materials and waste
We are firmly committed to the responsible management
of waste materials. Our audit teams carry out regular internal
checks and assess our compliance with national and regional
standards, and government agencies conduct regular
environmental performance spot-checks at our facilities.
Overburden and tailings are the most significant waste
streams associated with our operations, accounting for
more than 99% of the total waste volume. During 2017,
we mined 12,589 Kt of ore and 114 Mt of waste, processed
13,037 Kt of ore and generated 128 Mt of waste. (While more
than in 2016, when we generated 74 Mt of waste, the volume
of mining have increased). We now operate eight tailings
facilities; there were no significant or major environmental
accidents involving tailings facilities at our operations last year.
Cyanide and hazardous waste management
Our production methods involve several harmful consumables.
Among these, the largest is cyanide, which generates
hazardous waste during the recovery of gold from the ore we
process. We are rigorous in our handling, management and
monitoring of cyanide due to its hazardous potential.
In 2016, we became signatories to the International Cyanide
Management Code, followed by the certification of Amursk
POX. At Polymetal, we used 8.9 thousand tonnes of cyanide
in 2017.
Energy and carbon management
The main sources of energy consumed at our sites include
electricity, diesel fuel, natural gas and coal. Diesel fuel makes
up a significant proportion of our total energy consumption,
due to the remoteness of our sites and no proximity to
industrial centres and centralised power supply systems.
One of our priorities is to increase our energy efficiency.
Our new Energy Management System has been developed
in compliance with ISO-50001 and will be implemented
across the Company in 2018. Following a feasibility study into
alternative energy sources in 2017, approval has been given
for a solar power plant at Svetloye and a wind farm at the
seaport of Unchi, with the aim of launching both during 2018.
Greenhouse gas emissions
Heat and electricity from our diesel generators, as well as
our mining fleet operations, produce greenhouse gas (GHG)
emissions. The burning of natural gas and coal and the use
of landfill also contribute to our GHG footprint. We measure
and monitor our CO2 emissions using established
international methodology – our full Carbon Management
Policy is on our website. In 2017, we introduced a number
of measures to reduce GHG emissions, including converting
all lighting to LED, and equipping diesel-powered generators
with a heat recovery system. We also began to develop our
Climate Management System.
GHG Emissions
(t)
VALUING OUR PEOPLE
621
672,309
638
736,724
590
771,320
2017
GHG emissions intensity (CO2eq. t/10 Kt or ore processed)
2015
2016
GHG (t)
Protecting biodiversity
We are committed to treading lightly in the regions where
we operate and work hard to minimise our impact on local
biodiversity. We do not operate in or adjacent to protected
or vulnerable areas or upon land that has particular value –
natural, historical or cultural – for Indigenous Minorities of the
North (IMN). Due to the extreme northern location of most
of our sites, the surrounding territory is low in conservational
value. However, some sites are situated in the Russia’s Far
East, which provides natural habitats for various rare and
threatened or vulnerable plant and animal species.
All our employees are involved in our biodiversity conservation
programme and help with biodiversity monitoring. In addition,
we insist that all site staff, including contractors, take part in
environmental, health and safety awareness training to ensure
that they understand their responsibilities. Our biodiversity
assessment in 2017 concluded that with the exception of one
endangered species, the Poiny flower identified at Kapan,
there was no significant impact on biodiversity in or around
our production sites.
Planning for mine closures and rehabilitation
As all sites will eventually deplete their mineral resource
and ore reserves, it is essential that we plan responsibly
for the end of each mine’s operational life. Our long-term
remediation obligations include fulfilling decommissioning
and restoration liabilities and covering suspension or
abandonment costs in compliance with national regulations
and legislation. In 2017, we started developing our Corporate
Mine Closure Standard, which will be implemented in 2018.
We want to attract the best people and ensure they are
motivated to stay. So we strive to create a fair and inclusive
environment, pay competitive salaries that benchmark well
within the industry, offer equal terms of employment and
reward performance. Through training, and skills and
leadership development, we are creating our future
business leaders.
We are fully compliant with national and international
standards relating to staff and management, ensuring that
our working environment is based on fairness and respect.
We expect all employees to comply with our Company
Code of Conduct, which covers equality, health and safety,
government and community relations, environmental
protection, transparency, competition and data protection.
It sets out our zero-tolerance approach to drug use, conflicts
of interest, bribery and bullying. In accordance with our
Human Rights Policy, and as signatories to the UN Global
Compact, we are also committed to a zero-tolerance
approach to human trafficking and modern slavery.
Anti-corruption
We work hard to raise awareness of bribery and corruption
and its potential impact on our business. Across the Group,
we have implemented measures and training to help prevent
corruption and fraud among our employees, contractors
and suppliers.
During the year, the instances of corruption identified within
our business were limited to minor fraud, with no material
impact on our operations or financial position. No court
cases relating to corruption were brought against the
Company or any of our employees.
Equal opportunities and diversity
We are committed to equal opportunities and terms
of employment. We recruit people on merit and do not
discriminate on any grounds, including gender, race, skin
colour, religion, nationality, social origin and political opinions.
In 2017, no reported cases of discrimination were made
within the Group.
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55
SUSTAINABILITY
We ensure equality in pay and provide equal levels of
remuneration at positions with the same competence
requirements for both male and female employees. We
actively promote the inclusion of women in our workforce and
leadership teams. At Polymetal, women are well represented
in senior positions, particularly in administrative, social and
communication professions, although the number is much
lower in production, construction and geology. In 2017,
women occupied 24% of our management roles, and
represented 22% of our total workforce (see the diagram
below). Women make up 27% of our Board.
Fair employee relations
We have an excellent track record in regulating employee
relations based on equality, consideration of mutual interests,
strict compliance with local social and labour regulations, and
constructive dialogue between partners on all social and
labour issues. We support our employees’ rights to freedom
of association and collective agreements. In 2017, 89% of all
our employees worldwide and 100% of personnel at our
operating sites in Russia, Armenia and Kazakhstan were
covered by collective bargaining agreements.
All issues raised by employees through our internal
communication systems are considered and investigated
promptly. In 2017, we received 1,001 queries via our various
communication channels. The results of our employee survey
show that 76% of employees are satisfied with our feedback
system, and that meeting with the Company’s management
is considered the most effective.
Headcount and turnover
At the end of 2017, we employed 11,919 people (2016:
11,261). The majority of our people work on a ‘fly-in/fly-out’
basis rather than permanent relocations, because of the
demanding nature of the work and our remote site locations.
Over the last seven years, we have been steadily reducing
our average employee turnover rate (including fly-in/fly-out
operations). In 2011, this rate was 19.6%, and in 2017,
the rate was just 5.4%. This achievement is partly attributable
to a difficult macroeconomic environment, but also to our
efforts to promote internal employee mobility, training and
development, and favourable working conditions.
Investment in training and development
Training and development are critical to improving skills,
keeping employees motivated and ensuring the future
success of the Company. We invest in Group-wide training
and development, as well as our Talent Pool to help develop
the next generation of skilled managers. In 2017, we invested
US$1,474 thousand in professional training across the
business – 70% more than in 2016.
Proportion of male to female
qualified personnel
22%
24%
42%
12%
Total
workforce
Mid-level
management
Qualified
personnel
Workers
78%
76%
58%
88%
Mid-level management includes employees who hold positions as heads of
companies or business units: directors, chiefs of divisions, managers, experts or
supervisors etc.; chief specialists, for example, chief accountant, chief dispatcher,
chief engineer, chief mechanic, chief metallurgist, chief geologist; and deputies to
these positions.
Qualified personnel are employees who are engaged in engineering and technical,
economic and other such positions. In particular accountants, geologists, dispatchers,
engineers, inspectors, mechanics, quantity surveyors, editors, economists, energy
specialists, legal advisors etc., and assistants to these positions. It also covers office
workers in accounting and control and maintenance positions, who are not engaged in
manual labour, including clerks, concierge staff, controllers, secretaries, and so on.
Workers include personnel who are directly engaged in the process of value creation,
as well as those engaged in repair, moving goods, transporting passengers, providing
material services.
Assessing our impact
We conduct community polls and hold annual performance
review meetings with stakeholders to evaluate the social
and economic performance of our projects. This provides
communities with the opportunity to participate directly in the
development and monitoring of our social programmes –
and helps us respond flexibly to changing situations. In 2017,
we conducted polls in eleven districts and discussed various
issues involving 726 people with our assessments showing no
negative impacts from our operations.
Positive impacts included tax payments, support of
infrastructure and auxiliary industries, environmental
protection and ecological projects, regional population
increase due to industrial growth, local employment
opportunities, and social investment and community support.
During 2017, we constructed or upgraded 100 socially
significant institutions (2016: 50), including kindergartens,
schools, health centres, and sport and culture centres in
host communities in new and remote areas.
Our commitment to social investment
We discuss community needs and decide investment
priorities with local stakeholders. In 2017, we invested more
than US$11.7 million in local communities; our investment
over the last five years exceeded US$30 million. We focus on
projects involving sport, healthcare and education,
infrastructure, culture and creative potential, Indigenous
Minorities of the North (IMN) and environmental protection.
We made charitable donations worth US$268,655 as well
as ‘in-kind’ donations, including humanitarian aid to reindeer
herders (food, fuel and medicines); delivery of food and
medicine to remote communities and IMN; and construction
and maintenance of roads in remote areas.
SUPPORTING LOCAL COMMUNITIES
Our local stakeholders are key to our business success.
We do everything we can to ensure that our work does
not negatively impact our local communities, and that in
fact we have a positive impact on them.
Our corporate standards and policies for community relations
have been developed in line with international best practice
and the conventions of the UN Declaration on the Rights of
Indigenous Peoples and the UN Global Compact.
Community engagement
Our dedicated teams oversee our community investment and
engagement programmes. We communicate about
our activities through our Community Engagement System
(CES) and encourage local stakeholders to give us their
feedback. In 2017, we held 37 meetings (2016: 32), public
gatherings and hearings for local community members and
IMN. We also organised 20 site visits (2016: 15) for members
of the public and community representatives.
Each time we invest in a new mining site or project, we
assess the social and economic risks and impacts that our
activities may have at local and regional level, We develop
long-term strategies and engage with local communities,
institutions, authorities and organisations to ensure we deliver
maximum value to local people. In 2017, we began a dialogue
with the community of the Sakha Republic (Yakutia), our
newest region of operation.
Social investments in 2017
(%)
US$11.7m
Sport
Education
Infrastructure
Healthcare
Culture
IMN
Charity
Environmental awareness
27
20
20
19
8
2
2
1
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ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
57
FINANCIAL REVIEW
I am pleased to report robust earnings for
the year. The Group continued to deliver
positive free cash flow and generate
meaningful cash returns to our shareholders.
Financial highlights
• In 2017, revenue increased by 15% over 2016 to
US$1,815 million, primarily driven by gold equivalent (GE)
production growth of 13%. Gold sales were 1,090 Koz,
up 24% year-on-year, while silver sales were down 14%
to 26.5 Moz, in line with production volume dynamics.
Average realised gold and silver prices remained largely
unchanged from 2016 at US$1,247/oz and US$16.1/oz,
respectively.
• Group Total cash costs1 (TCC) were US$658/GE oz for
the year, up 15% from 2016 levels and at the lower end of
the Company’s updated guidance of US$650-675/GE oz.
The increase in TCC was predominantly driven by the
strengthening of the Russian Rouble (by 15% from an
average rate of 67.1 RUB/US$ in 2016 to 58.3 RUB/US$ in
2017) on the back of the recent oil-price rally and stabilising
macroeconomic conditions in Russia. All-in sustaining
cash costs1 (AISC) amounted to US$893/GE oz, also
within the Company’s updated guidance, an increase of
15% year-on-year, driven mostly by the same factors,
as well as significantly increased exploration spending
across the portfolio.
• Adjusted EBITDA1 was US$745 million, down 2%
compared with 2016, as increased costs incurred due to
a stronger Russian Rouble largely offset the production
growth. The Adjusted EBITDA margin was at 41%
compared with 48% in 2016.
• Net earnings2 were US$354 million versus US$395
million in the prior year, reflecting the decrease in EBITDA
and the impact of foreign exchange gains on 2016
earnings. Underlying net earnings1 were US$376 million
(2016: US$382 million).
• Capital expenditure came in at US$383 million3,
up 41% compared with 2016 due to accelerated
pre-stripping and construction at Kyzyl, as well as an
increased spend on brownfield exploration across the
operating assets portfolio. The Group is on track with the
commissioning of Kyzyl and the ramp-up of the
debottlenecked POX plant in the second half of 2018.
• Net debt1 increased to US$1,420 million during the period
(31 December 2016: US$1,330 million), representing a
Net debt/Adjusted EBITDA ratio of 1.91x. Despite intensive
construction activities at Kyzyl in the course of 2017,
the Company continued to generate meaningful free cash
flow1 that amounted to US$143 million (2016: US$257
million), while maintaining a stable net cash operating inflow
of US$533 million (2016: US$530 million).
• A final dividend of US$0.30 per share (approximately
US$129 million), representing 50% of the Group’s
underlying net earnings for the second half of 2017,
has been proposed by the Board in accordance with the
revised dividend policy and in compliance with the hard
ceiling of Net debt/Adjusted EBITDA ratio below 2.5x.
This will bring the total dividend declared for the period
to US$189 million.
1 The financial performance reported by the Group contains certain Alternative Performance Measures (APMs) disclosed to compliment measures that are defined or specified
under International Financial Reporting Standards (IFRS). For more information on the APMs used by the Group, including justification for their use, please refer to the ‘Alternative
performance measures’ section on page 168-169. The definition and calculation of non-IFRS APMs used in this report, including Adjusted EBITDA, Total cash costs, All-in sustaining
cash costs, Underlying net earnings, Net debt and Free cash flow are explained in this section.
2 Profit for the financial period.
3 On a cash basis, representing cash outflow on purchases of property, plant and equipment in the statement of consolidated cash flows. Total capital expenditure including loans
advanced on capital spending at Nezhda and Prognoz joint ventures comprised US$435 million.
58
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Financial highlights4
Revenue, US$m
Total cash cost, US$/GE oz
All-in sustaining cash cost, US$/GE oz
Adjusted EBITDA, US$m
Average realised gold price, US$/oz
Average realised silver price, US$/oz
Net earnings, US$m
Underlying net earnings, US$m
Return on Assets, %
Return on Equity (underlying), %
Basic EPS, US$/share
Underlying EPS, US$/share
Dividend declared during the period, US$/share5
Dividend proposed for the period, US$/share6
Net debt, US$m
Net debt/Adjusted EBITDA
Net operating cash flow, US$m
Capital expenditure, US$m
Free cash flow7, US$m
2017
1,815
658
893
745
1,247
16.1
354
376
18%
16%
0.82
0.88
0.32
0.44
2016
1,583
570
776
759
1,216
16.3
395
382
26%
18%
0.93
0.90
0.37
0.42
1,420
1,330
1.91
533
383
143
1.75
530
271
257
Change
+15%
+15%
+15%
-2%
+3%
-1%
-10%
-1%
-8%
-2%
-12%
-3%
-14%
+5%
+7%
+9%
+1%
+41%
-44%
4 Totals may not correspond to the sum of the separate figures due to rounding. % changes can be different from zero even when absolute amounts are unchanged because of
rounding. Likewise, % changes can be equal to zero when absolute amounts differ due to the same reason. This note applies to all tables in this section.
5 FY 2017: final dividend for FY 2016 declared in May 2017 and interim dividend for the 1H 2017 declared in September 2017. FY 2016: final dividend for FY 2015 declared in May 2016,
interim dividend for the 1H 2016 declared in September 2016, and special dividend declared in December 2016.
6 FY 2017: interim and final dividend for FY2017. FY 2016: interim, final and special dividend for FY2016.
7 Net cash flows from operating activities less cash flows used in investing activities excluding acquisition costs in business combinations and investments in associates and joint ventures.
Market summary
Please see the market overview on pages 20-21.
Foreign exchange
The Group’s revenues and the majority of its borrowings are denominated in US Dollars, while the majority of the Group’s
operating costs are denominated in Russian Roubles. As a result, changes in exchange rates affect its financial results
and performance.
For the Russian economy as a whole, 2017 proved to be a year of moderate improvement as oil continued the positive
price momentum it gained in 2016, finishing the year at US$60 per barrel. At the same time, the Russian Rouble appreciated
15% year-on-year from an average of 67.1 RUB/US$ in 2016 to 58.3 RUB/US$ in 2017, while the spot rate as at 31 December
2017 appreciated by 5% to 57.6 RUB/US$ compared with 31 December 2016. However, this trend had a negative impact on
the mining sector, resulting in increased Dollar value of the Group’s Rouble-denominated operating costs and lower Adjusted
EBITDA margins in the reported period.
The economics of Kazakh gold mining operations were also impacted by a moderate strengthening of the Kazakh Tenge
(up 5% year-on-year, from 342 KZT/US$ in 2016 to 326 KZT/US$ in 2017). The Armenian Dram remains the most stable
currency in the Former Soviet Union region with an average exchange rate of 484 AMD/US$ in 2017 (2016: 480 AMD/US$).
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
59
(68)
(6)
Cash operating cost structure
FINANCIAL REVIEW
Revenue
Sales volumes
Gold
Silver
Copper
Zinc
Gold equivalent sold8
8 Based on actual realised prices.
Sales by metal
(US$m unless otherwise stated)
Gold
Average realised price
Average LBMA closing price
Share of revenues
Silver
Average realised price
Average LBMA closing price
Share of revenues
Other metals
Share of revenues
Total revenue
2017
1,090
26.5
2.6
4.7
2016
880
30.7
1.6
2.8
1,456
1,301
Change
+24%
-14%
+57%
+67%
+12%
Volume
variance
US$m
256
Price
variance
US$m
33
Koz
Moz
Kt
Kt
Koz
2016
1,070
1,216
1,250
68%
500
16.3
17.1
32%
13
1%
2017
1,359
1,247
1,258
75%
426
16.1
17.0
23%
30
2%
US$/oz
US$/oz
%
US$/oz
US$/oz
%
%
Change
+27%
+3%
+1%
-15%
-1%
-1%
+131%
1,815
1,583
+15%
188
44
In 2017, revenues grew by 15% over 2016 to US$1,815 million, primarily driven by gold equivalent production growth of 13%.
The average realised gold and silver prices were largely unchanged compared with the prior year period. Gold sales volumes
increased by 24% year-on-year, while silver sales volumes decreased by 14% in line with production dynamics.
The average realised price of gold was US$1,247/oz in 2017, up 3% from US$1,216/oz in 2016, and slightly below the average
market price of US$1,258/oz. The average realised silver price was US$16.1/oz, down 1% year-on-year and 6% below the
average market price of US$17.0/oz as the bulk of Polymetal’s sales were recorded in the second half of 2017 when the silver
market prices were lower.
The share of gold sales as a percentage of total revenue increased from 68% in 2016 to 75% in 2017, driven by sales
volume movements.
Analysis by segment/operation
Segment
Magadan
Khabarovsk
Ural
Kazakhstan
Armenia
Total revenue
Operation
Dukat
Omolon
Mayskoye
Total Magadan
Albazino/Amursk
Okhotsk
Svetloye
Total Khabarovsk
Voro
Varvara
Kapan
Revenue, US$m
Gold equivalent sold, Koz
(silver equivalent for Dukat, Koz)
2017
2016
Change
405
266
139
810
350
142
138
630
155
154
66
497
207
119
823
294
149
30
473
157
101
29
1,815
1,583
-19%
+29%
+17%
-2%
+19%
-5%
+360%
+33%
-1%
+52%
+128%
+15%
2017
25,415
2016
30,771
211
124
654
277
111
107
496
123
123
55
168
114
683
234
122
23
380
125
82
27
1,456
1,301
Change
-17%
+26%
+8%
-4%
+18%
-9%
+360%
+31%
-2%
+50%
+104%
+12%
Sales at all operating mines were broadly in line with planned production dynamics.
60
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Cost of sales
On-mine costs
Smelting costs
Purchase of ore and concentrates from third and related parties
Mining tax
Total cash operating costs
Depreciation and depletion of operating assets
Rehabilitation expenses
Total costs of production
Increase in metal inventories
Write-down of metal inventories to net realisable value
Total change in metal inventories
Write-down of non-metal inventories to net realisable value
Idle capacities and abnormal production costs
Total cost of sales
2017
US$m
2016
US$m
414
316
92
88
910
193
–
1,103
(26)
16
(10)
3
10
1,106
320
259
38
82
699
162
1
862
(51)
21
(30)
6
8
846
Change
+29%
+22%
+142%
+7%
+30%
+19%
-100%
+28%
-49%
-24%
-67%
-50%
+25%
+31%
Services
Consumables and spare parts
Labour
Purchase of ore and concentrates from third and related parties
Mining tax
Other expenses
Total
2017
2016
US$m
% of total
US$m
% of total
308
233
183
92
88
6
910
34%
26%
20%
10%
10%
1%
100%
232
193
147
38
82
7
699
33%
28%
21%
5%
12%
1%
100%
The total cost of sales increased by 31% in 2017 to US$1,106 million, mainly on the back of a negative effect from the Russian
Rouble appreciating 15% compared with 2016, combined with a volume-based increase in production and sales (13% and
12% year-on-year in gold equivalent terms, respectively), as well as a significant increase in purchases of third-party ore and
concentrate at Varvara and Amursk.
Compared with 2016, the cost of services and the cost of consumables and spare parts increased by 33% and 21%,
respectively, driven by the higher gold equivalent production coupled with a stronger Russian Rouble.
Revenue by operation
(US$m)
1,040
Cash operating cost structure
(US$m)
1,040
497
405
294
266
44
37
154
207
350
57
139
119
44
66
29
157
155
149
142
138
101
30
308
232
233
193
183
147
Dukat
Voro
Okhotsk
Svetloye Varvara Omolon Albazino/
Amursk
Mayskoye Kapan
Services
Consumables
and spare parts
Labour
2016 2017
2016 2017
92
82
88
38
Purchase of
ore from
third & related parties
Mining tax
7
6
Other
expenses
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
61
FINANCIAL REVIEW
The total cost of labour within cash operating costs in 2017 was US$183 million, a 24% increase over 2016, mainly stemming
from additional labour costs at the new Kapan, Komar and Svetloye operations and annual salary increases (tracking
domestic CPI inflation).
Total cash costs
Total cash costs per gold equivalent ounce10
Mining tax increased by 7% year-on-year to US$88 million as production increased by 13%, and was mainly driven by
regional tax incentives introduced in the Russian Far East and utilised at Dukat, Omolon and Svetloye.
Depreciation and depletion was US$193 million, up 19% year-on-year and largely driven by the negative effect of a stronger
Russian Rouble with one specific increase attributable to Varvara where the depreciation of mineral rights for the new
Komar asset has started.
In 2017, a net metal inventory increase of US$26 million was recorded (excluding write-downs to net realisable value)
mainly represented by gold and silver concentrate produced but not yet sold at Dukat and Albazino. In the second half
of the year, the Company successfully completed scheduled stockpile reductions, with total gold equivalent sales
exceeding production by 42 Koz. De-stockpiling was mainly driven by concentrate shipments from Mayskoye and
seasonal de-stockpiling at Svetloye.
General, administrative and selling expenses
Labour
Services
Share based compensation
Depreciation
Other
Total
2017
US$m
116
11
10
4
17
158
2016
US$m
87
10
7
3
13
120
Change
+33%
+10%
+43%
+33%
+31%
+32%
General, administrative and selling expenses increased by 32% year-on-year from US$120 million to US$158 million on the
back of Russian Rouble appreciation against 2016, as well as increased labour costs due to newly acquired operations,
increased personnel at stand-alone exploration projects and regular salary reviews.
Other operating expenses
Exploration expenses
Social payments
Provision for investment in Special economic zone
Taxes, other than income tax
Housing and communal services
Loss on disposal of property, plant and equipment
Change in estimate of environmental obligations
Additional mining taxes and VAT exposures, penalties and accrued interest, net
Other expenses
Total
9 NM – not meaningful.
2017
US$m
2016
US$m
18
15
12
11
4
1
(4)
(8)
(5)
44
10
10
14
11
4
1
(5)
(12)
3
36
Change
+80%
+50%
-14%
–
–
–
-20%
-33%
NM9
+22%
Other operating expenses increased by 22% from US$36 million in 2016 to US$44 million in 2017. Written-off exploration
expenses during the period increased by 80% to US$18 million. Cash-based exploration expenses in 2017 were
US$16 million (2016: US$11 million).
Social payments totalled US$15 million, up 50% year-on-year. The increase was mostly attributable to the financing of
social and infrastructure development projects at Kyzyl and the start of a social development programme at Kapan.
During 2017, the Group released US$6 million of accrued penalties and interest due to settlements with tax authorities
at Kapan and paid US$6 million in relation to royalty provisions identified as of 31 December 2016. There were no
other significant changes in tax provisions. For more information refer to Note 12 of the consolidated financial statements.
Segment
Khabarovsk
Magadan
Ural
Kazakhstan
Armenia
Total Group
Operation
Okhotsk
Svetloye
Albazino/Amursk
Total Khabarovsk
Dukat (SE oz)11
Omolon
Mayskoye
Total Magadan
Voro
Varvara
Kapan
Cash cost per GE ounce, US$/oz
Gold equivalent sold, Koz
(silver for Dukat)
2017
702
313
676
603
8.2
652
2016
648
419
529
710
6.4
503
1,040
1,011
726
383
701
871
658
581
322
780
900
570
Change
+8%
-25%
+28%
-15%
+28%
+30%
+3%
+25%
+19%
-10%
-3%
+15%
2017
111
107
277
496
2016
122
23
234
380
25,415
30,771
211
124
654
123
123
55
168
114
683
125
82
27
1,456
1,301
Change
-9%
+360%
+18%
+31%
-17%
+26%
+8%
-4%
-2%
+50%
+104%
+12%
10 Total cash costs comprise cost of sales of the operating assets (adjusted for depreciation expense, rehabilitation expenses and write-down of inventory to net realisable value and
certain other adjustments) and general, administrative and selling expenses of the operating assets. Gold equivalent sales volume is calculated based on average realised metal
prices in the relevant period. Total cash cost per gold equivalent ounce sold is calculated as Total cash costs divided by total gold equivalent unit ounces sold.
11 Dukat’s total cash cost per gold equivalent was US$646/GE oz (2016: US$494/GE oz) and was included in the Group TCC calculation.
In 2017, total cash costs (TCC) per gold equivalent ounce sold were US$658/GE oz, up 15% year-on-year. The continuing
appreciation of the Russian Rouble against the US Dollar had a negative impact on cost levels reported in US Dollars,
which was partially offset by the robust operating performance at Varvara (Komar), Svetloye and Kapan.
The table below summarises major factors that have affected the Group’s TCC dynamics year-on-year:
Reconciliation of TCC and AISC movements
Cost per gold equivalent ounce – 2016
US$ rate change
Domestic inflation
Change in average grade processed by mines
Change in sales structure
Au/Ag ratio change
Mining tax change – Au&Ag price
Other
Cost per gold equivalent ounce – 2017
TCC
AISC
US$/oz
Change
US$/oz
Change
570
77
13
8
7
3
1
(21)
658
14%
2%
1%
1%
1%
0%
-4%
15%
776
108
18
8
7
3
1
(27)
893
14%
2%
1%
1%
0%
0%
-4%
15%
Total cash costs by operation
(US$/GE oz)
1,040
All-in sustaining cash by segment
(US$/GE oz)
1,040
529
1,040
1,011
900
871
1,242
1,236
1,264
1,292
8.2
6.4
702
648
780
701
652
676
503
529
383
322
419
313
10.4
8.0
975
952
869
750
752
858
846
675
684
532
419
426
62
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
63
2016 2017
2016 2017
Dukat1
1 Silver equivalent oz for Dukat.
Voro
Okhotsk Svetloye
Varvara Omolon Albazino/
Amursk
Mayskoye Kapan
Dukat1
1 Silver equivalent oz for Dukat.
Voro
Okhotsk Svetloye
Varvara Omolon Albazino/
Amursk
Mayskoye Kapan
FINANCIAL REVIEW
Total cash cost (TCC) by operation:
• Dukat’s TCC per silver equivalent ounce sold (‘SE oz’) increased by 28% year-on-year to US$8.2/SE oz.
In addition to Russian Rouble appreciation, the cost increase is attributable to the planned silver grade decline at
Dukat and Lunnoye underground mines.
• At Voro, TCC increased by 19% year-on-year to US$383/GE oz, which is largely attributable to a stronger Russian Rouble.
At the same time, the heap leach facility and CIP plant continued to deliver a stable performance in line with the mine plan.
• At Okhotsk, TCC was US$702/GE oz, an 8% increase year-on-year, which is below the Russian Rouble appreciation
during the year and was offset by third-party ore with better metallurgical properties that was introduced to the feed at
the Khakanja plant in 2017.
• Svetloye was the lowest cost operation in 2017, with TCC of US$313/GE oz, 25% lower than in 2016 as it ramped-up
to full capacity and achieved positive mine-to-model grade reconciliations.
• At Varvara, TCC was US$701/GE oz, declining by 10% year-on-year. The decrease mainly stemmed from significantly
improved head grades at the leaching circuit, enabled by the quick ramp-up in ore railed from Komar that is displacing
lower grade ore from Varvara.
• At Omolon, TCC amounted to US$652/GE oz, a 30% increase year-on-year, driven by the strengthening of the Russian
Rouble. The costs in the second half of 2016 were also positively impacted by processing high-grade ore from Oroch.
• At Albazino/Amursk, TCC was US$676/GE oz, up 28% compared with 2016. The cost increase was mostly attributable
to a seven-week maintenance and retrofit shutdown in May plus an additional 15-day maintenance shutdown in Q4,
as well as processing of higher cost third-party concentrate.
• TCC at Mayskoye were US$1,040/GE oz, a 3% increase year-on-year and below the Russian Rouble appreciation,
as the underground operation ramped-up and the production profile was supported by the crown pillar open-pit project.
• Kapan’s TCC were US$871/GE oz, improved by 3% year-on year thanks to the operational and financial turnaround and
the ongoing improvement measures to debottleneck the underground mine, while there were purchases of higher cost
third-party material in order to utilise available capacity at the processing plant.
All-in cash costs
Total, US$m
US$/GE oz
Total cash costs
SG&A and other operating expenses
not included in TCC
Capital expenditure excluding new projects
Exploration expenditure (capital and current)
2017
955
112
141
87
2016
738
98
120
47
All-in sustaining cash costs12
1,295
1,004
Finance cost
Capitalised interest
Income tax expense
After-tax All-in cash costs
Development capital
SG&A and other expenses for development assets
All-in costs
63
8
89
1,455
170
20
1,645
63
5
169
1,241
121
14
1,376
Change
+29%
+14%
+18%
+85%
+29%
–
+60%
-47%
+17%
+40%
+43%
+20%
2017
658
77
97
60
893
43
6
61
1,003
117
14
1,134
2016
570
76
93
36
776
49
4
131
959
94
11
1,063
Change
+15%
+2%
+5%
+65%
+15%
-11%
+43%
-53%
+5%
+25%
+27%
+7%
12 All-in sustaining cash costs comprise total cash costs, all selling, general and administrative expenses for operating mines and head office not included in TCC (mainly represented
by head office SG&A), other expenses (excluding write-offs and non-cash items, in line with the methodology used for calculation of Adjusted EBITDA), and current period capex
for operating mines (i.e. excluding new project capex (‘Development capital’), but including all exploration expenditure (both expensed and capitalised in the period) and minor
brownfield expansions).
All-in sustaining cash costs amounted to US$893/GE oz in 2017 and increased by 15% year-on-year, driven mostly by the
increase in TCC as a result of the continued strengthening of the Russian Rouble, as well as increased exploration spending
across the portfolio.
All-in sustaining cash cost by segment/operation
All-in sustaining cash costs by mines were represented as follows:
Segment
Khabarovsk
Magadan
Ural
Kazakhstan
Armenia
Total
Operation
Okhotsk
Svetloye
Albazino/Amursk
Total Khabarovsk
Dukat
Omolon
Mayskoye
Total Magadan
Voro
Varvara
Kapan
2017
US$/GE oz
2016
US$/GE oz
869
426
846
760
10.4
858
750
752
684
710
8.0
675
1,236
1,242
914
532
952
1,292
893
734
419
975
1,264
776
Change
+16%
-43%
+24%
+7%
+30%
+27%
-1%
+25%
+27%
-2%
+2%
+15%
All-in sustaining cash costs (AISC) followed TCC dynamics – driven by the exchange rate – and increased year-on-year across
all operating mines, except for Svetloye and Mayskoye where strong operating performances outweighed the effect of other
factors resulting in decreased AISC.
Adjusted EBITDA and EBITDA margin13
Reconciliation of Adjusted EBITDA
Profit for the year
Finance cost (net)
Income tax expense
Depreciation and depletion
EBITDA
Write-down of metal inventory to net realisable value
Write-down of non-metal inventory to net realisable value
Share based compensation
Net foreign exchange losses/(gain)
Change in fair value of contingent consideration liability
Rehabilitation costs
Additional mining taxes, VAT, penalties and accrued interest
Adjusted EBITDA
2017
US$m
2016
US$m
354
59
89
214
716
16
3
10
10
(2)
–
(8)
745
395
60
169
155
779
21
6
7
(65)
22
1
(12)
759
Change
-10%
-2%
-47%
+38%
-8%
-24%
-50%
+43%
NM
NM
-100%
-33%
-2%
13 Adjusted EBITDA is a key measure of the Company’s operating performance and cash generation capacity (excluding impact of financing, depreciation and tax) and a key industry
benchmark allowing to perform peer comparison. Adjusted EBITDA also excludes the impact of certain accounting adjustments (mainly non-cash items) that can mask underlying
changes in core operating performance.
The Company defines Adjusted EBITDA (a non-IFRS measure) as profit for the period adjusted for depreciation and amortisation, write-downs and reversals of inventory to
net realisable value, share-based compensation expenses, rehabilitation expenses, bad debt allowance, foreign exchange gains or losses, changes in fair value of contingent
consideration, finance income, finance costs, income tax expense and other tax exposures accrued within other operating expenses. Adjusted EBITDA margin is Adjusted
EBITDA divided by revenue.
64
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
65
FINANCIAL REVIEW
Adjusted EBITDA by segment/operation
Segment
Magadan
Khabarovsk
Ural
Kazakhstan
Operation
Dukat
Omolon
Mayskoye
Total Magadan
Albazino/Amursk
Svetloye
Okhotsk
Total Khabarovsk
Voro
Varvara
Kyzyl
Total Kazakhstan
Armenia
Kapan
Corporate and other and
intersegment operations
Total
2017
US$m
2016
US$m
180
120
20
320
157
101
58
316
97
68
(13)
55
20
(63)
745
283
116
13
412
167
18
71
256
113
36
(8)
28
6
(56)
759
Change
-36%
+3%
+54%
-22%
-6%
+461%
-18%
+23%
-14%
+89%
+63%
+96%
+233%
+13%
-2%
In 2017, Adjusted EBITDA was US$745 million, down 2% year-on-year, resulting in an Adjusted EBITDA margin of 41%.
The decrease was mainly driven by a 15% increase in TCC, which was to a large extent offset by 13% growth in GE
production. At Omolon, Svetloye, Varvara, Mayskoye and Kapan, Adjusted EBITDA increased on the back of a strong
operating performance, offsetting the negative impact of an appreciating Russian Rouble. Across other operating mines,
Adjusted EBITDA declined year-on-year.
Other income statement items
Polymetal recorded a net foreign exchange loss in 2017 of US$10 million compared with a gain of US$65 million in 2016.
These unrealised non-cash forex gains and losses recorded in both periods are mainly comprised of the revaluation of
US-Dollar-denominated borrowings of Russian operating companies, where the functional currency is the Russian Rouble.
The Group’s average gross debt during 2017 was US$1,417 million, mostly denominated in US Dollars, while the RUB/US$
exchange rate decreased from 60.7 RUB/US$ as at 31 December 2016 to 57.6 RUB/US$ as at 31 December 2017.
The Company does not use any hedging instruments for managing foreign exchange risk, other than a natural hedge arising
from the fact that the majority of the Group’s revenue is denominated or calculated in US Dollars. Though income statement
volatility may arise in financial reporting, Polymetal believes that the underlying matching of revenue cash flows against debt
repayments and related interest represents an economically effective hedging strategy.
Income tax expense for 2017 was US$89 million compared with US$169 million in 2016. The decrease was mainly
attributable to the effect of regional tax incentives applied by operations in the Russian Far East, most notably Svetloye,
Dukat and Omolon. For details refer to Note 16 of the consolidated financial statements.
Adjusted EBITDA by operation
(US$m)
1,040
Capital expenditure
(US$m)
1,040
283
180
167
157
116
120
101
113
97
71
58
68
13
20
18
36
-8
36
-13
6
20
116
86
62
34
27
28
24
13
6
19
19
18
11
12
15
9
32
3
3
Dukat
Omolon
Mayskoye
Albazino/
Amursk
2016 2017
Svetloye
Okhotsk
Voro
Varvara
Kyzyl
Kapan
Kyzyl
Albazino/
Amursk
Dukat
Kapan
Varvara
Mayskoye
Omolon
Svetloye
Okhotsk
Voro
2016 2017
66
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
61
58
44
44
28
10
Corporate
and other,
exploration
Capatilised
stripping
Net earnings, earnings per share and dividends
The Group recorded a net income of US$354 million in 2017 versus US$395 million in 2016. Underlying net earnings
(excluding after-tax impact of write-down of metal inventory to net realisable value, foreign exchange gains/losses and
change in fair value of contingent consideration liability) were US$376 million, compared with US$382 million in 2016.
Reconciliation of underlying net earnings14
Profit for the financial year
Write-down of metal inventory to net realisable value
Tax effect on write-down of metal inventory to net realisable value
Foreign exchange loss/(gain)
Tax effect on foreign exchange loss/(gain)
Change in fair value of contingent consideration liability
Tax effect on change in fair value of contingent consideration
Underlying net earnings
2017
US$m
354
16
(3)
10
2
(2)
(1)
376
2016
US$m
395
21
(4)
(65)
14
22
–
382
Change
-10%
-24%
-24%
NM
-84%
NM
NM
-2%
Basic earnings per share were US$0.82 per share compared to US$0.93 per share in 2016. Underlying basic EPS15 was
US$0.88 per share, compared to US$0.90 per share in 2016.
In accordance with the Company’s revised dividend policy, the Board is proposing to pay a final dividend of US$0.30 per
share (giving a total expected dividend of US$129 million) representing 50% of the Group’s underlying net earnings for the
period. During 2017, Polymetal paid a total of US$138 million in dividends, representing final dividends for FY 2016 and interim
dividends for the first half of 2017.
14 Underlying net earnings represent net profit for the year excluding the impact of key items that can mask underlying changes in core performance.
15 Underlying basic EPS are calculated based on underlying net earnings.
Capital expenditure16
Kyzyl
Albazino/Amursk
Dukat
Kapan
Varvara
Mayskoye
Omolon
Svetloye
Okhotsk
Voro
Corporate and other
Exploration
Capitalised stripping
Total
2017
US$m
116
62
28
24
19
18
12
9
3
3
3
58
28
383
2016
US$m
86
34
27
13
6
19
11
15
2
3
7
37
10
271
Change
+34%
+82%
+4%
+85%
+217%
-5%
+9%
-40%
+50%
–
-57%
+56%
+169%
+41%
In 2017, total capital expenditure was US$383 million17, up 41% year-on-year mainly due to investments in construction
and pre-stripping at Kyzyl and increased spending on brownfield exploration across the operating assets portfolio.
Capital expenditure excluding capitalised stripping costs was US$355 million in 2017 (2016: US$261 million).
16 On a cash basis.
17 On accrual basis, capital expenditure was US$432 million in 2017 (2016: US$288 million).
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
67
FINANCIAL REVIEW
The major capital expenditure items in 2017 were as follows:
• At all operating mines except for Albazino/Amursk, Kapan and Varvara, capital expenditures declined or remained almost
unchanged year-on-year beyond the effect of Russian Rouble appreciation, and were mainly represented by routine mining
fleet upgrades/replacements and maintenance expenditure at processing facilities.
• Capital expenditure at Albazino/Amursk was US$62 million, almost a two-fold increase year-on-year, mostly related to the
POX debottlenecking project in the amount of US$40 million during 2017 (planned to reach full expanded capacity in the
second half of 2018), underground engineering and other technical re-equipment, as well as the construction of the second
tailings storage.
• US$24 million was invested at Kapan, mostly related to purchases of underground mining equipment and near-mine
exploration, including drilling at Lichkvaz, as well as a number of initiatives to improve safety and reduce the environmental
footprint of operations (centralised the mine ventilation, tailings storage facility upgrade, water treatment and recycling facilities).
• At Varvara, the increased capital expenditure is mainly related to debottlenecking of the railway station for cargo
acceptance and purchases of railway carriages to allow transportation of larger volumes of ores from Komar and third
parties, technical re-equipment and reconstruction of the tailing storage.
• At Kyzyl, capital expenditure in 2017 comprised US$116 million, mainly representing the main concentrator building,
ore-preparation complex (the crusher, conveyor gallery and apron feeder), tailings storage facility, electric shovels,
mechanical and repair shop and purchases of mining machinery, as well as capitalised pre-stripping of US$31 million.
• The Company invests in standalone exploration projects. Capital expenditures for exploration in 2017 was US$58 million
compared with US$37 million in 2016.
• Capitalised stripping costs totalled US$28 million in 2017 (2016: US$10 million) and are attributable to operations with
stripping ratios exceeding their life-of-mine (LOM) averages during the period, in particular Albazino (US$9 million),
Varvara (US$6 million) and Omolon (US$6 million).
Cash flows
Operating cash flows before changes in working capital
Changes in working capital
Total operating cash flows
Capital expenditure
Acquisition costs in business combinations and investments in associates and joint ventures
Other
Investing cash flows
Financing cash flows
Net increase in borrowings
Dividends paid
Contingent consideration payment
Total financing cash flows
Net decrease/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
2017
US$m
2016
US$m
601
(68)
533
(383)
(87)
(7)
(477)
76
(138)
(5)
(67)
(11)
48
(1)
36
557
(27)
530
(271)
(128)
(2)
(401)
26
(158)
(2)
(134)
(5)
52
1
48
Change
+8%
+152%
+1%
+41%
-32%
+250%
+19%
+192%
-13%
+150%
-50%
+120%
-8%
NM
-25%
Total operating cash flows in 2017 remained stable compared with the prior year. Operating cash flows before changes
in working capital grew by 8% year-on-year to US$601 million mainly as a result of a decrease in cash tax payments.
Net operating cash flows were US$533 million, compared with US$530 million in 2016. This was also affected by an
increase in working capital in 2017 of US$68 million.
Total cash and cash equivalents decreased by 25% compared with 2016 and comprised US$36 million, with the following
items affecting the cash position of the Group:
• operating cash flows of US$533 million;
• investment cash outflows totalled US$477 million, up 19% year-on-year and mainly represented by capital expenditure
(up 41% year-on-year to US$383 million), cash investments in new assets (namely, Nezhda US$20 million, Prognoz
US$5 million, Kapan US$5 million) and loans advanced on capital expenditure at growth projects (Nezhda and Prognoz
totalling US$52 million);
• payment of regular dividends for 2016 and the first half of 2017 amounting to US$138 million; and
• the net increase in borrowings of US$76 million.
Balance sheet, liquidity and funding
Short-term debt and current portion of long-term debt
Long-term debt
Gross debt
Less: cash and cash equivalents
Net debt
Adjusted EBITDA
Net debt/Adjusted EBITDA
31 Dec 2017
US$m
31 Dec 2016
US$m
26
1,430
1,456
36
1,420
745
1.91
98
1,280
1,378
48
1,330
759
1.75
Change
-73%
+12%
+6%
-25%
+7%
-2%
+9%
The Group’s net debt increased to US$1,420 million as of 31 December 2017, representing a Net debt/Adjusted EBITDA
ratio of 1.91x.
The proportion of long-term borrowings comprised 98% as at 31 December 2017 (93% as at 31 December 2016).
In addition, as at 31 December 2017, the Group had US$1.4 billion (31 December 2016: US$1.0 billion) of available
undrawn facilities, of which US$1.3 billion is committed from a wide range of lenders, that maintain its operational
flexibility in the current environment.
The average cost of debt remained low at 3.96% in 2017 (2016: 4.33%), supported by low base interest rates and the
ability to negotiate competitive margins given the solid financial position of the Company and its excellent credit history.
The Group is confident in its ability to repay its existing borrowings as they fall due.
2018 outlook
While we recognise that our financial performance remains contingent on commodity prices and the Rouble/Dollar exchange
rate dynamic, which has a significant effect on the Group’s operating costs, Polymetal expects to deliver a robust financial
and operating performance in our first year of production from Kyzyl:
• The Company reconfirms its production guidance for 2018 and 2019 of 1.55 Moz and 1.7 Moz of gold equivalent,
respectively.
• TCC in 2018 are expected to be in the range of US$650-700/GE oz while AISC are expected to average US$875-925/GE oz
on the back of anticipated rising domestic diesel prices and expected strengthening of the Russian rouble.
• The capital expenditure in 2018 is expected to be slightly lower compared with 2017 at roughly US$400 million.
Significant investments will be directed towards the completion of the Kyzyl and POX debottlenecking projects.
The Company also plans to advance feasibility studies for Nezhda and POX-2 projects. Exploration spending is
expected to stay elevated as Polymetal will continue its aggressive drilling campaign at the Prognoz silver project.
• As a result, the Company expects to continue to deliver positive free cash flow and prioritise dividends in our capital
allocation process in 2018.
Maxim Nazimok
Chief Financial Officer
68
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
69
RISKS AND RISK MANAGEMENT
Companies in the mining sector are challenged with
managing a rapidly changing risk landscape, including
market volatility, widespread macroeconomic changes,
geopolitical crises and environmental risks. Rigorous risk
management is essential to the achievement of our strategic
objectives and sustainable value creation and continues to
remain a key part of our business model. We are committed
to minimising risks to all our stakeholders through accurate
and timely risk identification and effective mitigation activities.
Risk management framework
At Polymetal, we maintain a robust and sustainability-
conscious risk management framework, which ensures that
risks are properly identified, assessed against tolerance levels
and appropriately managed across the Group. Our risk
management system is designed to minimise the potential
threats to achieving our strategic objectives and the process
is underpinned by a bottom-up approach and examined from
a top-down perspective, ensuring adequate involvement of
the Board and executive management and alignment with
the Company’s strategy.
The global and local markets, in which we operate, remain
volatile with shifting commodity prices and exchange rates,
macroeconomic instability and unpredictable climatic
conditions. The Board is responsible for carrying out a
thorough assessment of the key risks facing the Company,
including those threatening stakeholders, values, business
model, operations, social and environmental issues, future
performance, solvency or liquidity. On behalf of the Board,
the Audit and Risk Committee reviews the effectiveness of
the risk management process and develops and oversees
implementation of risk management strategies. The Safety
and Sustainability Committee measures the impact of the
Company’s initiatives and helps the Audit and Risk
Committee to manage sustainability risks. The Audit and
Risk Committee is supported by Group Internal Audit to
enable effective risk identification, evaluation and mitigation
process across the Company. Further information on the
Board and its Committees is given in the Governance section
on pages 81 to 87.
The principal risks identified during the process form
the Group’s principal risk profile, which is reviewed and
approved by the Audit and Risk Committee three times a
year. The potential impact of principal risks and the availability
and effectiveness of the mitigating actions that could be
taken to avoid or reduce the impact or occurrence of the
underlying risks are carefully considered during the annual
assessment of future prospects and long-term viability of
the Group. Further detail on our approach to assessing
long-term viability can be found on page 112.
Risk management and internal control systems are
continuously enhanced in accordance with COSO ERM
framework and are adjusted for any changes to the
UK Corporate Governance Code. They are also regularly
reviewed to incorporate global best practice and add
value to our business.
Level
Function
Areas of focus
Board and Board
Committees
Governance and oversight
at corporate level
• Set the tone on risk management culture
• Maintain sound and effective risk management and
Internal audit
function
n
w
o
d
-
p
o
T
Support the Audit and
Risk Committee in evaluating
the Group’s risk profile and
internal controls implemented
by management
internal control systems
• Define risk appetite and approve risk management
policies, guidelines and processes
• Responsible for principal risks identification and ongoing
monitoring of the Company’s risk exposure to ensure
that material matters are managed in alignment with
strategic objectives
• Define and monitor the risk management process and
mitigation tools and actions
• Plan and execute assurance activities to ensure there
are policies and procedures in place to support the
effectiveness of the Group’s internal control system
• Prepare regular risk and internal control reports for
approval by the Audit and Risk Committee and maintain
the Risk Assurance Map
• Perform risk analysis on growth projects, detailing the
specific conditions and risks faced by the new project
B
o
t
t
o
m
-
u
p
Operational
managers
Operating risk management
across mining operations
and exploration
• Risk awareness embedded into day-to-day operations
• Risks identification and assessment performed across
business operations on the everyday basis
• Implementation of risk mitigation programmes
and operational monitoring of internal controls
1
Risk identification and documentation
Risk awareness is embedded within the Group and is
grounded in our strong ethical values and pro-active
corporate culture. Our risk management philosophy
is cascaded top down from the Company’s Board
of Directors and runs through all our management,
employee and connected stakeholder activities –
from developing strategy to day-to-day operations.
Our policy is to identify and assess risks at the
earliest possible stage and to implement an
appropriate risk response and internal controls in
advance. Our risk management procedures are
designed to delegate the responsibility for risk
identification while avoiding gaps and duplications.
Risk identification requirements are also taken into
account in the design of accounting and
documentation systems in order to be able to identify
and process information on potential risk triggers.
Polymetal’s risk identification system considers not
only single, mutually exclusive risks, but also multiple
linked and correlated risks.
2
Risk assessment
Once identified, potential risk factors are
assessed to consider the quantitative and
qualitative impact that they might have on the
business and the likelihood of the event (see
table below). Together these create a risk profile.
The Audit and Risk Committee monitors risk
KPIs for all principal risks a three times a year.
Risk matrices and assurance maps are used to
record, prioritise and track each risk through the
risk management process. These are reviewed
regularly by the Audit and Risk Committee.
4
Monitoring and reporting
Ongoing monitoring processes are embedded in
Polymetal’s business operations. These track the
effective application of internal control and risk
management policies and procedures, including
internal audit and specific management reviews.
Risk matrices and assurance maps are used to
re-evaluate and adjust controls in response to
changes in the Company’s objectives, its
business and the external environment.
Management is responsible for the
implementation of effective follow-up procedures
to ensure appropriate actions occur in response
to changes in risk and control assessments.
3
Development and implementation
of risk mitigation strategies
When the appropriate ranking has been identified,
a response to each risk is formulated and
implemented. Management assesses the effects
of a risk’s likelihood and impact, as well as the
costs and benefits of possible mitigating actions.
A response is then determined and implemented
to bring the risk within acceptable tolerance levels.
70
POLYMETAL INTERNATIONAL PLC
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ANNUAL REPORT & ACCOUNTS 2017
71
RISKS AND RISK MANAGEMENT
RISK MATRIX
CONSEQUENCE
Risk impact
Insignificant
Minor
Moderate
Major
Catastrophic
Slight injury or
health effects –
first aid/minor
medical
treatment level
Minor injury or
health effects –
restricted work or
minor lost workday
case
Major injury or
health effects –
major lost workday
case/permanent
disability
Permanent total
disabilities,
single fatality
Multiple fatalities
Minimal harm
Material harm
Serious harm
Major harm
Extreme harm
Less than 1%
Adjusted EBITDA
1-5%
Adjusted EBITDA
5-10%
Adjusted EBITDA
10-20%
Adjusted EBITDA
More than 20%
Adjusted
EBITDA
Harm to people
Environmental
impact
Business
disruption/
asset damage
& other
consequential
loss
Legal and
regulatory
Low level legal
issue
Minor legal issue;
non-compliance
and breaches of
the law
Serious breach of
law; investigation/
report to authority,
prosecution and/or
moderate penalty
possible
Major breach of
the law;
prosecution and
penalties applied
Very
considerable
penalties and
jail term
Impact on
reputation
Slight impact –
public awareness
may exist but no
public concern
Limited impact –
local public
concern
Considerable
impact – regional
public concern
Limited impact –
national public
concern
International
impact –
international
public concern
LIKELIHOOD
Rare
Unlikely
Possible
Likely
Almost certain
Never occurred or
is highly unlikely to
occur in the next
20 years
Occurred several
times or could happen
within 20 years
Occurred at some
point within 10 years
and may re-occur
within 10 years
Occurred infrequently:
less than once a year
and is likely to re-occur
within 5 years
Occurred frequently:
one or more times per
year and is likely to
re-occur within
one year
EVIDENCE OF PRINCIPAL RISKS OCCURRENCE
i
e
c
n
e
d
v
e
g
n
o
r
t
S
e
c
n
e
d
v
e
o
N
i
Low
72
1 Market risk
2 Production risk
3 Construction and
development risk
4 Tax risk
5 Exploration risk
6 Health and
safety risk
7 Environment risk
8 Legal risk
6
7
2
1
Extreme
4
8
12
10
3
11
5
9
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
9 Political risk
10 Currency risk
11 Liquidity risk
12 Interest rate risk
Medium
High
No change
since 2016
PRINCIPAL RISKS
Set out below are the Group’s principal risks and related
mitigation strategies. Principal business risks are identified
by the Board based on a detailed understanding of the
Company, its markets and the legal, social, political,
economic, technological, environmental and cultural
environments in which we operate, and robust assessment
of the likelihood of occurrence and potential consequences
of risk event. For the current reporting period, we validated
the continued importance of our 12 principal risks and our
risk profile remains stable relative to last year.
Risk description
and potential effect
1. MARKET RISK
Risk response
Link to strategy: Deliver robust operating and financial performance
Risk
level
Gold and silver price volatility
may result in material and
adverse movements in the
Company’s operating results,
revenues and cash flows.
The Company has developed and implemented procedures to ensure consistent cash flow generation
at operating mines, including:
• redistribution of ore feedstock between deposits within a hub to achieve higher margins due to better
grade profile, better logistics or less expensive mining methods;
• deferring the start of production while continuing ore stacking to achieve better cost profiles due to
positive effects of scale;
• managing the volume of third-party ore purchases;
• staffing level review and hiring freeze; and
• asset-level cost-cutting.
Reserve and resource prices, as well as cut-off grades, are reviewed at least annually to
conservatively reflect the prevailing commodity price levels. Short-, medium- and long-term life-of-
mine plans are adjusted as appropriate.
Stress testing for these conservative price assumptions is performed to ensure resilience of the
operating mines in a stress scenario and continued value creation. Contingency action plans have
been developed to address performance in a stress scenario.
While precious metals prices remain volatile, the measures taken by the Company ensure that each
operating mine remains cash flow positive. The Company will continue with this approach.
Currently, the Group does not hedge its commodity price exposure since its strategy is to offer
stakeholders full exposure to the potential upside of gold and silver pricing.
2. PRODUCTION RISK
The risk of failure to meet
the planned production
programme. Failure to meet
production targets may adversely
affect operating performance and
the financial results of the Group.
The key sources of risk may
include:
• inability to achieve volume,
grade or recovery assumed
in life-of-mine plans;
• failure of supply chains to
procure complex logistics
to remote locations;
• failure to retain key employees
or to recruit new staff; and
• failure of contractors to
meet required performance
standards.
Link to strategy: Deliver robust operating and financial performance
• Inability to achieve volume, grade or recovery assumed in life-of-mine plans
Annual, quarterly and monthly production budgeting and subsequent monthly control against budget
is designed to mitigate the risk. The effectiveness and efficiency of the production process is ensured
by the Group’s engineering team senior management. An approved production programme includes
increased volume of operational prospecting works, such as in-fill drilling and grade control sampling.
To mitigate the risk, the Group invests considerable amounts in ore quality assessment procedures
and seeks to control ore quality by separate stockpiling of ore with the required characteristics.
• Failure of supply chains to procure complex logistics to remote locations
The Group has implemented and constantly improves the supply chain system to closely link the
production demand of resources with inventory levels, optimise the number of order placements
and ensure the in-time inventory and equipment delivery to production sites.
• Failure to retain key employees or to recruit new staff
Remuneration policies are designed to incentivise, motivate and retain key employees. There is
an increased focus on health and safety – refer to pages 52-53 of this report. There is an active
promotion of a positive corporate culture within the Group.
• Failure of contractors to meet required performance standards
The contractors’ performance control system is designed, implemented and applied.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
73
RISKS AND RISK MANAGEMENT
Risk description
and potential effect
Risk response
Risk
level
Risk description
and potential effect
Risk response
Risk
level
3. CONSTRUCTION AND DEVELOPMENT RISK
Link to strategy: Deliver medium-term growth
7. ENVIRONMENT RISK
Link to strategy: Maintain high standards of governance and sustainable development
Inability to achieve target return on capital
for large investment projects, such as building
new mines and processing facilities or
extension/refurbishment of existing operating
mines, due to delay in commissioning or
capital expenditure overruns. This may have
a negative impact on the Group’s financial
performance and cash flows.
The Company applies global best practices in project management. The Group’s
technical personnel are in charge of the project’s capital expenditure, including project
support, supply chain management and permitting process. A significant share of
projects is developed by the in-house engineering company, Polymetal Engineering,
which has vast experience and a successful track record of design and ramp up of
mines and processing facilities. We are continuously improving our construction risk
management systems and employ leading world-class consultants in applicable areas.
4. TAX RISK
Link to strategy: Deliver robust operating and financial performance
Due to frequent changes in tax legislation in
Russia, Kazakhstan and Armenia, lack of
established practices in tax law means that
additional costs such as taxes or penalties
may occur. The taxation risk level correlates
with the legal and political risks levels.
Multinational companies will continue to be
subject to considerable public scrutiny across
the world within the BEPS (Base Erosion and
Profit Shifting) action plan.
The Group’s policy is to comply fully with the requirements of applicable tax laws,
providing adequate controls over tax accounting and tax reporting.
Nevertheless, the ongoing changes to Russian, Kazakh and Armenian tax legislation,
and evolving practice of application of these laws in courts, could lead to tax disputes
and potential additional tax liabilities.
The Group regularly evaluates its tax positions to ensure they are adequately reflected in
the consolidated financial statements. To date, the Group is not aware of any significant
outstanding tax claims, which could lead to additional taxes accrued in the future
(except for amounts already booked or disclosed in the Group’s financial statements).
The Group is continuously monitoring its tax strategies and tax structures to comply
with the new landscape created by BEPS without suffering unwarranted disruptions
in business operations or incurring excessive tax costs.
5. EXPLORATION RISK
Link to strategy: Build and advance long-term growth pipeline
Exploration and development are time and
capital-intensive activities and may involve
high degrees of risk but are necessary
for the future growth of the business.
Failure to discover new reserves of sufficient
magnitude could adversely affect the
Company’s future performance.
Risk and uncertainty are inherent for exploration and development activities.
The Group invests considerable amounts in key exploration projects to obtain sufficient
information about the quantity and quality of new reserves and to estimate expected
cash flows. The Group’s Chief Geologist and engineering teams have a strong track
record of successful greenfield and brownfield exploration, leading to the subsequent
development of exploration fields into commercial production.
6. HEALTH AND SAFETY RISK
Link to strategy: Maintain high standards of governance and sustainable development
The Group operates potentially hazardous
sites such as open-pits, underground mines,
exploration sites, processing facilities and
explosive storage facilities. The operation
of these sites exposes our personnel to
a variety of health and safety risks.
A control system covering occupational and industrial safety in the Company is in place,
including risk assessment of individual work places and the use of safety equipment
for the protection of personnel.
The Company has reinforced the need for individual responsibility for personal safety
and risk awareness, and developed additional security measures to ensure strict
compliance with safety requirements by employees.
The Group’s general approach to this risk is determined by the Group’s Health and
Safety Policy, which serves as the basis for the Occupational Health and Safety
Management System (OHSMS). The Group adopts the industry’s global best practice
in managing these risks and ensuring safe working conditions for our employees.
Our OHSMS ensures compliance with international, national and local regulatory
requirements and is based on modern standards. It is also certified in accordance
with the OHSAS 18001.
The Group has strong safety procedures across all its operating mines and has
implemented additional measures to ensure proper enforcement of these stricter safety
standards. We have intensified training programmes, with a particular focus on high-risk
functions, and implemented a number of other measures, including a change of
underground mining methods at certain sites. We are continuing to conduct a detailed
review of the source of injuries and are further improving the shift risk assessment
system, as well as conducting an external audit of our health and safety system.
Major pollution arising from operations include:
deforestation, air and water pollution, land
contamination. Potential impacts include
fines and penalties, statutory liability for
environmental redemption and other financial
consequences that might be significant.
The Company operates a certified environmental management system which meets
international standards and is audited for compliance.
The Company has implemented a number of initiatives to monitor and limit the impact of
its operations on the environment, including external expert assessment of the pollution
generated and adopting industry best practice for corporate and mine level policies
and procedures.
8. LEGAL RISK
Link to strategy: Maintain high standards of governance and sustainable development
Polymetal has a successful track record of operating in Russian, Kazakh and, more
recently, Armenian jurisdictions, having developed its own expertise in corporate, tax,
licensing and other legal areas.
Corporate and operating management teams are responsible for meeting the legal
requirements in their operating activities. Head office and on-site legal teams guarantee
appropriate controls over compliance issues.
The Group’s policy is to ensure strict legal compliance in all jurisdictions where Group
companies operate. The Group’s financial and legal teams monitor current legislation and
proposed changes, and incorporate these into the practice, involving leading external
experts where appropriate.
Operating in developing countries, such as
Russia, Kazakhstan and Armenia, involves the
risk that changes in tax and other legislation
may occur from time to time.
The most sensitive areas are regulation of
foreign investments, private property,
environmental protection and taxation.
In recent years, the governments of Russia and
Kazakhstan have become more consistent
regarding the introduction of new regulations
and taxes, demonstrating an awareness of
investment climate issues. However, in the
application of existing legislation requiring
interpretation, courts often uphold the more
assertive position of the tax authorities, which
does not always coincide with the
Company’s position.
As a result of changes in laws and regulations,
certain types of transactions and technologies
may become unavailable to the Group or the
costs of compliance may be increased.
9. POLITICAL RISK
Link to strategy: Maintain high standards of governance and sustainable development
The Group actively monitors political developments on an ongoing basis. We aim to
maintain open working relationships with local authorities in the countries where
we operate.
Sanctions imposed on Russian individuals and businesses in 2014-2017 have not
currently had any direct influence on the Group’s operations. However, at the same time,
to a limited extent they have affected both the macroeconomic situation in Russia and
interest rates for borrowings.
Operating in Russia, Kazakhstan and Armenia
involves some risk of political instability, which
may include changes in government, negative
policy shifts and civil unrest.
Financial and economic sanctions imposed
in 2014-2017 by the United States and the
European Union on certain businesses
and individuals in Russia increased political
tensions and economic instability; there is a risk
that further sanctions could impact the Group’s
ability to operate in Russia.
Russia’s complex relations with the
United States and European Union,
as well as its involvement in conflicts
in the Middle East, may potentially present
a risk to Group’s operations.
In addition, there is a risk that due to the
deterioration of the macroeconomic situation,
governments in Russia, Kazakhstan and
Armenia may consider imposing currency
controls and limitations on capital flows.
These factors are not expected to affect the
Group’s operating performance, yet may have
a negative impact on the ability of the Group
to secure external financing.
These factors may have an adverse
effect on the Group’s market value and
operating environment.
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75
RISKS AND RISK MANAGEMENT
CHAIRMAN’S LETTER
Risk description
and potential effect
10. CURRENCY RISK
Risk response
Link to strategy: Deliver robust operating and financial performance
Risk
level
The risk arises from Company’s receipts
from metal sales and foreign currency
denominated debt, as well as the foreign
currency denominated cost of imported
capital goods and consumables.
Natural hedging is used to reduce the risk exposure: revenue is matched with
US Dollar denominated debt.
Flexible budgeting is used to monitor the effect of exchange rate fluctuations on the
Group’s financial results. The Group has determined critical exchange rates levels
for its operations and is monitoring risk against these levels.
During 2017 there was moderate volatility of the Russian Rouble and Kazakh Tenge
exchange rates against foreign currencies. The Company believes that critical
devaluation of these currencies is unlikely. The Armenian Dram was stable during 2017.
11. LIQUIDITY RISK
Link to strategy: Deliver robust operating and financial performance
The inability to raise sufficient funds to meet
current operating or ongoing financial needs
or to develop new projects and growth.
Inadequate cash management in terms of
cash flow forecast, available resources and
future requirements.
The Group’s treasury function is responsible for ensuring that there are sufficient funds
in place, including loan facilities, cash flow from operating activities and cash on hand
to meet short-term business requirements. Long-term credit lines and borrowings are
used to finance new projects and organic growth.
The Group ensures that significant undrawn committed facilities are in place to cover
any funding gaps.
12. INTEREST RATE RISK
Link to strategy: Deliver robust operating and financial performance
The Group is exposed to the interest rate risk
as the significant part of the Group’s debt
portfolio is US Dollar-denominated floating
rate borrowings.
The Group monitors recent trends for any increase in base rates by the US Federal
Reserve since the election results in the United States. Although market interest rates
have gone up during the past 12 months, the magnitude of risk remains low as rates
continue to rise (fueled by expectations of a Federal rate hike and US Dollar inflation),
the dominant market expectation is that this will continue.
Management proactively locked interest rates on significant parts of the loan portfolio
(currently 46%) in anticipation of the rate rise. Current negotiations with banks include
assessment of their fixed vs floating rates. The Group does not rule out the possibility
of further fixing the interest rate on its borrowings should assessment of the ongoing
economic situation suggest this would reduce the risk level.
76
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ANNUAL REPORT & ACCOUNTS 2017
Respect for our stakeholders, employees and the
environment are all integral to making Polymetal
a profitable business. We are committed to
building a successful corporate culture with a
sustainable future.
Dear Shareholders
Maintaining and delivering returns to our shareholders remains an
absolute for Polymetal. Alongside the constant focus on our current
portfolio and projects in the pipeline, which provide us with financial
stability, it is also vital that we look to the future of the business in
terms of both our leadership and skills base. We have put in place a
succession programme that will increase the breadth of expertise
and enhance the independence of the Board in its decision making.
Retaining and training employees is also key to achieving our long-term
goals. Each year, we commit substantial funds to both internal and
external training opportunities, and we are already seeing promotions
from within our own talent pool.
Adhering to key strategic goals
Core to the role of the Board is ensuring that the business adheres to
its key strategic goals. The delivery of a dividend that is both significant
and sustainable throughout the cycle is crucial to our shareholders.
Our positive free cash flow enabled us to meet our obligations and
continue to deliver a sector-leading TSR. At the same time, we met our
production guidance with particularly good performances from Svetloye,
Komar and Amursk POX, supporting our plans for growth and quality at
our existing operations. Our strong financial discipline ensures that we
control costs, but we are still looking to increase our reserves; the latest
estimates from Nezhda reaffirmed our confidence in this asset. Kyzyl
takes centre stage when it launches later this year successfully fulfilling
our medium-term growth plans. However, with our investments in
Nezhda as well as in the largest undeveloped silver asset in Russia at
Prognoz, we have already started looking at the next phase of our
development programme. Throughout all our activities, we are mindful
of our responsibilities in upholding the highest ethical standards and
best practice in corporate governance and sustainable development.
Future proofing the business
Through open channels of communication, we keep all our
stakeholders informed about major plans for the business and, in
doing so, develop good working relationships and create value for
Polymetal. Similarly, it is important that investors and analysts have
a good understanding of our strategy and operations. Our investor
relations programme includes regular presentations and webcasts,
as well as opportunities to meet and discuss issues with senior
management. In 2017, we also met with key shareholders to discuss
various governance and sustainability matters. The Board believes that
the disclosures set out on pages 18 to 69 of the Annual Report provide
the information necessary for shareholders to assess theСCompany’s
position, performance, business model and strategy.
During 2017, Polymetal instigated the first stages of a comprehensive
Board succession programme, which will ensure that we continue to
have a majority of independent directors on a board while at the same
time providing a greater depth in finance, mining and institutional
investment skills. Russell Skirrow and Len Homeniuk, long-standing
members of the Board, will be stepping down at the 2018 AGM and,
on behalf of the Board and Polymetal, I would like to thank them
both for their invaluable contributions. Three new board members,
Tracey Kerr, Giacomo Baizini and Ollie Oliveira were appointed in
2018 and will be offering themselves for election at the AGM.
Succession planning is also of vital importance in ensuring that we are
able to access a combination of skills and experience across all levels
that will, in turn, deliver the effective and strategic leadership needed
to take the business forward. Our Young Leaders Programme provides
bespoke training for our future generation of senior managers and is
invaluable to our ability to compete successfully in the marketplace.
Our Safety and Sustainability Committee continues to devote
considerable efforts to improvement of safety measures and
maintenance of appropriate risk management procedures.
The Committee met six times in 2017 and will continue to address
sustainability issues in due course. A joint meeting was held between
the Safety and Sustainability and Audit and Risk Committees to carry
out an in-depth review of the results of the internal audit of
environmental and safety risks and how to mitigate against them.
There are definite synergies to be gained from such joint working and
is something that we will be encouraging where it enhances continuity
and increases awareness among the Board Committees.
Achieving international accolades
We are particularly pleased that our commitment to good environmental,
social and governance practices continues to gain recognition from
external agencies. We achieved a significant improvement in our ratings
for FTSE4Good, Sustainalytics and Dow Jones, scoring maximum
points for governance and most improved for our environmental
practices. We were ranked the leader in environmental management
among Russian metals and mining companies by the World Wildlife
Fund/UN. We were shortlisted by IR Magazine Europe for the Best
ESG Communications and our business case for electric vehicles in
underground mines won the award for the best use of technology at
the MINEX 2017 conference. More details about these and all our
ESG activities are available in our Sustainability Report 2017.
Respect for our stakeholders, employees and the environment is
integral to making Polymetal a profitable business. The Board
works closely with the senior management team to ensure that the
framework for corporate governance is embedded in every aspect of
our operation. Through ethical standards and responsible behaviour,
together we are committed to building a successful corporate culture
with a sustainable future.
Bobby Godsell
Chairman
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
77
BOARD OF DIRECTORS
BOBBY GODSELL
CHAIRMAN OF THE
BOARD OF DIRECTORS
CHRISTINE COIGNARD
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
VITALY NESIS
GROUP CHIEF
EXECUTIVE OFFICER
N
R
NA
S
RUSSELL SKIRROW1
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
A S
LEONARD HOMENIUK2
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
S
N R
GIACOMO BAIZINI4
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
A R
Appointed: 29 September 2011.
Appointed: 01 July 2014.
Appointed: 29 September 2011.
Appointed: 29 September 2011.
Appointed: 29 September 2011.
Appointed: 1 January 2018.
Previous experience: Chairman of Business
Leadership South Africa, President of the
South African Chamber of Mines, Chairman of
Eskom, Chief Executive of AngloGold Ashanti,
Director of African Barrick Gold and Solar
Capital, Chair of the Board of Optimum Coal
Holdings, acquired by Glencore plc. Director of
Platmin Limited, Member of the South African
National Planning Commission.
Previous experience: 30 years’ experience
in the banking industry and advisory services
world-wide, gained in banking at the Royal
Bank of Canada, Société Générale and Citi;
International Consultant for the Apogee Gold
Fund based in Boston; project manager for
Interros in Russia; Director of investments and
financing for Norilsk Nickel; Managing Director
at HCF International Advisers.
Qualifications: BA from the University of Natal
and MA from the University of Cape Town.
Other roles: Co-Chairman of the South African
Millennium Labour Council. Non-executive
Director of the South African Industrial
Development Corporation.
Qualifications: Business degree from EMLYON,
France, and MBA from the Schulich School of
Business, Toronto, Canada.
Other roles: Managing Director and
Founding partner of Coignard & Haas GmbH,
Independent director at Eramet and member
of its Audit, Risks and Ethics Committee
and Strategy and Corporate Social
Responsibility Committee.
Previous experience: JSC Polymetal’s Chief
Executive from 2003, Member of its Board,
2004-2012. CEO of Vostsibugol, 2002-2003.
Strategic Development Director at the
Ulyanovsk Automobile Plant in 2000.
Qualifications: BA in Economics from
Yale University; MA in Mining Economics
from St. Petersburg Mining Institute.
Other roles: Head of the Investment Planning
Department at SUAL-Holding, 2001-2002.
McKinsey in Moscow, 1999-2000.
Merrill Lynch in New York, 1997-1999.
Previous experience: Board member of JSC
Polymetal, 2008–2012. Total of 36 years’
experience working in the global mining
industry and investment banking, including
ten years at Merrill Lynch in London as Head
of Global Metals, Mining & Steel Research
and subsequently as Global Chairman of the
Metals/Mining investment banking team, and
during the 1980s and early 1990s in Gold
Fields Ltd (South Africa) and Western Mining
Corporation in Australia, and the USA.
Chairman of Dampier Gold Ltd 2010-2013.
Qualifications: BSc with Honours in Geology
from Durham University and a PhD from the
Royal School of Mines, Imperial College,
London. Member of the Institute of Materials,
Minerals & Mining with Chartered Engineer
status and Fellow of the Financial Services
Institute of Australasia.
Previous experience: Board member of JSC
Polymetal, 2010-2012. President, CEO and
member of the Board of Directors of Centerra
Gold, 2004-2008. Chair, President and
Chief Executive Officer of Polygon Gold Inc.,
2011-2014. Held executive positions
with Centerra Gold, Kumtor Gold and
Cameco Corporation.
Qualifications: MSc from the University of
Manitoba. Member of the Ontario Society
of Professional Engineers, the Canadian
Institute of Mining and Metallurgy and the
Prospectors and Developers Association of
Canada. Honorary Professor at the Kyrgyz
Mining Institute.
Other roles: Director of Trade Ideas LLC.
Previous experience: EVRAZ plc Group CFO in
2009-2014 and various positions in operations
planning and business development since
joining the Group in 2005. Prior to joining
EVRAZ, Mr. Baizini was a management
consultant with McKinsey & Co. in their
Milan and Tokyo offices.
Qualifications: Summer MBA from the Kellogg
Graduate School of Management; MA Hons
in Physics from the University of Oxford and
a Diploma of Industrial Engineering from the
Japan Management Association.
Other roles: General Manager of EVRAZ
Group S.A.
MARINA GRÖNBERG
NON-EXECUTIVE
DIRECTOR
S
JEAN-PASCAL DUVIEUSART
NON-EXECUTIVE
DIRECTOR
KONSTANTIN YANAKOV
NON-EXECUTIVE
DIRECTOR
JONATHAN BEST
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
A R
TRACEY KERR3
INDEPENDENT
NON-EXECUTIVE
DIRECTOR
SN
Appointed: 29 September 2011.
Appointed: 29 September 2011.
Appointed: 29 September 2011.
Appointed: 29 September 2011.
Appointed: 1 January 2018.
Previous experience: Board member of JSC
Polymetal, 2008-2012. Various positions in
banks and private equity firms.
Qualifications: Degrees in Economics and
Finance, and in Law from Moscow State Law
Academy and in Applied Mathematics from
Moscow State University.
Other roles: Board member of Waterstones
(UK), Hachette-Atticus, MIG Credit, Kopter
Group, PIK Group and Nexwafe GmbH;
member of the Board of A&NN Investments
and Vitalbond; Member of the Supervisory
Board of Tallano Technologie (France);
Chairman of Alpha Trust Investment
committee; President of the Charity Fund
named after Nadezhda Brezhneva.
Previous experience: Managing Partner for
Central Europe and the CIS at McKinsey;
joined McKinsey in 1992 and worked in
Brussels, New York and Central Europe
before becoming Managing Partner in Prague.
Advised to banks, insurers and industrial
companies in Russia and Central Europe.
Former Executive Director of Nomos Bank.
Qualifications: MBA from the University of
Chicago; Master’s degree in Commercial
Engineering, Catholic University of Louvain,
Belgium.
Other roles: Shareholder of PPF Group N.V.
since 2010. Board member of Home Credit
B.V., the Anglo-American School of Moscow
and Charity foundation Foodbank Rus.
Member of the European Regional Business
Council of the World Economic Forum Davos.
Previous experience: Member of JSC Polymetal’s
Board of Directors, 2008-2012and member of
its Audit Committee. Various positions at MDM
Bank. CFO of JSC Polymetal until 2004.
Member of the Board at Piraeus Bank, Inbank,
Greek Organisation of Football Prognostics
(OPAP S.A.), and Tiscali S.p.A., and non state
pension fund ‘Future’, member of the
Supervisory Board of Rigensis Bank.
Qualifications: MBA from the London Business
School; PhD in Economics from the Russian
State University of Management; degree in
Global Economics from the Government of
Russia’s Finance Academy.
Other roles: Deputy Director General in
charge of Finance at CJSC ICT, Director
of ICT Holding Ltd and member of the
Board at O1 Properties Limited.
Previous experience: Over 35 years’ experience
in the mining industry. Board member of JSC
Polymetal, 2006-2012; Chairman of the Audit
Committee of Gulf Industrials; Chairman of
Sentula Mining and Bauba Platinum, and
member of their nomination and remuneration
committees; Chairman of GoldStone
Resources; Interim CEO of Trans-Siberian
Gold in 2006; CFO and Executive Director
of AngloGold Ashanti.
Qualifications: MBA from the University of
the Witwatersrand, Johannesburg, Chartered
Management Accountant (ACMA), Associate
of the Chartered Institute of Secretaries
and Administrators.
Other roles: Non-executive Director of
AngloGold Ashanti Holdings plc and Chairman
of its Audit Committee; Non-executive Director
and Chairman of the Audit Committee of
Metair Investments.
Previous experience: 30 years’ experience in
the international mining industry. Held the
role of Group Head of Exploration with
Anglo American Plc, 2011-2015. Before joining
Anglo American in 2011 she held technical
and exploration management roles with
Vale and BHP Billiton, based in Australia,
UK, Canada and Brazil.
Qualifications: MA in Economic Geology from
University of Tasmania, Diploma in Company
Direction from the Institute of Directors,
United Kingdom.
Other roles: Group Head of Safety and
Sustainable Department in Anglo American plc.
Key
Committee Chair
A Audit and Risk Committee
R Remuneration Committee
N Nomination Committee
S Safety and Sustainability Committee
78
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
1 Mr Skirrow served as a Director in 2017 and will not be offering himself for re-election at the AGM 2018.
2 Mr Homeniuk served as a Director in 2017 and will not be offering himself for re-election at the AGM 2018.
3 Ms Kerr was appointed by the Board with effect from January 1, 2018 as independent non-executive Director, Chair of the Safety and Sustainability Committee and member
of the Nomination Committee. She is subject to election at the AGM 2018.
4 Mr Baizini was appointed by the Board with effect from January 1, 2018 as independent non-executive Director and member of the Audit and Risk and Remuneration committees.
He is subject to election at the AGM 2018.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
79
SENIOR MANAGEMENT
VITALY SAVCHENKO
CHIEF OPERATING OFFICER
Appointed: 2009
MAXIM NAZIMOK
CHIEF FINANCIAL OFFICER
Appointed: 2017
Experience: Previous roles in Polymetal:
Chief Financial Controller, 2011-2015, and
Finance Director of Polymetal, 2015-2016.
Deputy Chief Financial Officer at Nomos Bank
in 2011-2012, Director of Business Planning
and Analysis since 2009. Head of Management
and IFRS Reporting at MDM Bank, 2008-2009.
Various financial positions at
PricewaterhouseCoopers, 2003-2008.
Qualification: BA in Economics from
St. Petersburg State University; graduated
with distinction from the Executive MBA-Global
Programme at London Business School and
Columbia Business School. Fellow member
of ACCA.
VALERY TSYPLAKOV
MANAGING DIRECTOR, POLYMETAL ENGINEERING
Appointed: 2004
Experience: Previous roles in Polymetal:
Deputy General Director for Mineral Resources,
Design and Technology and senior roles in the
Production and Technology and Technological
Research Departments, 2000-2004.
Department Head at the Soviet Union
Research Institute of Aeronautical Automation
and, prior to this, a quest scientist at Aarhus
University’s Physics Institute (Denmark).
Research Fellow in the Plasma Physics
Department of the Moscow Physics and
Engineering Institute. Professional Member
of the Institute of Materials, Minerals &
Mining (London).
Qualification: Degree in Experimental Nuclear
Physics, Moscow Physics and Engineering
Institute. PhD in Physics and Mathematics.
IGOR KAPSHUK
CHIEF LEGAL OFFICER
Appointed: 2015
Experience: Previously worked in Polymetal as
Head of the Legal Department from 2005 and
Deputy Head from 2003. Deputy General
Counsel, Head of the Department for Legal
Matters and Head of Claims Department at the
branch of Siberia Energy Coal Company and at
Vostsibugol (Irkutsk), 2001-2003. Legal advisor
for Pharmasintez, 1999-2001. Legal advisor
and acting Head of the Legal Department at
the Irkutsk Tea-Packing Factory, 1997-1998.
Legal advisor at an insurance company
(Irkutsk), 1994-1997.
Qualification: Degree from the Law School
of Irkutsk State University.
Experience: Director of the Production
Department, 2007-2009, senior production
and technical positions since 2004. Chief
Underground Mine Engineer at Priargunskoye
Mining and Chemical Company as well as
various managing positions at the mine,
1994-2003. Recipient of second and
third-category Miner’s Glory Medal.
Qualification: Degree with Honours in
Underground Mineral Mining engineering,
Kyrgyz Mining Institute; MBA from the UK’s
Open University Business School.
SERGEY TRUSHIN
DEPUTY CEO, MINERAL RESOURCES
Appointed: 2010
Experience: Chief Geologist at the Khabarovsk
Exploration Company, 2008-2010. Chief
Geologist at Albazino Resources 2006-2008
and various positions at Albazino Resources
since 1998. Geologist with Dalnevostochnie
Resources, 1991. Geologist with the
Production Geological Association
‘Dalgeology’ and the Nizhne-Amursk
exploration expedition in the preceding
six years.
Qualification: Degree in Geological Surveying
and Mining Engineering Exploration from the
Novocherkassk State Polytechnic Institute.
PAVEL DANILIN
DEPUTY CEO, STRATEGIC DEVELOPMENT
Appointed: 2009
Experience: Previous roles in Polymetal: Director
of Corporate Finance and Investor Relations,
Head of Corporate Finance. Head of Corporate
Finance at CJSC ICT, 2002 and 2003. Deputy
Head of Currency Department and Head of
Financial Resources Department at the
Kaliningrad branch of Bank Petrocommerce,
1998-2001.
Qualification: MBA from the University of
California at Berkeley, Haas School of
Business. Degree in Economics and
Management, Kaliningrad State
Technical University.
ROMAN SHESTAKOV
DEPUTY CEO, PROJECT DEVELOPMENT
AND CONSTRUCTION
Appointed: 2009
Experience: Chief Engineer at Gold of
Northern Urals, 2007-2009; pit superintendent
2006-2007. Mine superintendent at the
Okhotsk Mining and Exploration Company,
2004-2005. Mining engineer in the Production
and Technical Department of JSC Polymetal
Management in the preceding two years.
Qualification: Honours degree in Open-pit
Mining from the Mining Department of the St.
Petersburg State Mining Institute. MBA from
the UK’s Open University Business School.
80
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Board of Directors
Chairman
Bobby Godsell
N
Group CEO
Vitaly Nesis
S
New independent non-executive
Directors from January 2018
Tracey Kerr
S N
Giacomo Baizini
A R
Committees
A Audit and Risk Committee
R Remuneration Committee
N Nomination Committee
S Safety and Sustainability Committee
Non-executive
Independent
Directors
Konstantin Yanakov
Jean-Pascal
Duvieusart
Marina Grönberg
S
non-executive
Directors
Christine Coignard
A R N
Russell Skirrow
A S
Jonathan Best
A R
Leonard Homeniuk
R N S
Board skills
(%)
Mining and sustainability
55
Finance
Investment banking
Business strategy
Law and governance
36
Board independence
(%)
Board diversity
(%)
9
27
36
55
64
64
64
73
Independent Directors
Non-Independent Directors
Chairman
Men
Woman
Statement of compliance with the UK Corporate
Governance Code
The Directors are committed to maintaining high standards of
corporate governance. As a premium UK-listed company, during
the year ended 31 December 2017, Polymetal International was
required to comply with the UK Corporate Governance Code
(the UK Code) – published in April 2016 and available through the
UK Financial Reporting Council’s website – or, where the provisions
of the UK Code have not been complied with, to provide appropriate
explanations. During 2017, the Company was in compliance
with all provisions of the UK Code.
As well as complying with the UK Code, the Company has complied
with all applicable regulations of the Moscow Stock Exchange and
Russian securities laws since its shares were admitted for
secondary trading on the Moscow Exchange.
Role and structure of the Board
In 2017, the Company started its Board succession programme in
order to further enhance the Board’s core skills in finance, mining
and institutional investor engagement while adhering to best practice
in corporate governance, including having a majority of independent
directors. Polymetal started a phased refresh of its Board and
appointed Spencer Stuart, an international search firm, to find further
independent non-executive directors; two new Directors, Tracey Kerr
and Giacomo Baizini were appointed on 1 January 2018.
At the 2018 AGM, they will be offering themselves for election by
the shareholders and at the same time two of the existing Directors,
Russell Skirrow and Len Homeniuk will be stepping down having
served on the Board approximately seven years since IPO. In addition,
Ollie Oliveira will also stand for election at the 2018 AGM.
As of the date of this report, the Company’s Board comprises
the non-executive Chairman, one executive Director and nine
non-executive Directors. Excluding the Chairman, six members of the
Board are independent non-executive Directors. The graphic opposite
shows the current structure of the Board and its Committees along
with the status of each Director. Subject to shareholder approval,
when Mr Oliveira joins the Board, he will become a member of the
Audit and Risk, and Remuneration Committees and serve as a
Senior Independent Non-Executive Director.
The independent non-executive Directors are those determined
by the Board to be independent in character and judgement and
to be free from relationships or circumstances which may affect or
could appear to affect their judgement. The role of the independent
Directors on the Board is to challenge the strategy and scrutinise
the performance of management in meeting agreed goals and
objectives, to monitor the reporting of the Company’s performance,
to review the integrity of financial information and ensure that
the Company’s internal financial controls and system of risk
management are robust and defensible. They are responsible for
determining the appropriate level of remuneration for the Group
Chief Executive (Group CEO) and have a primary role in appointing
and, when necessary, removing him.
Non-independent non-executive Directors include Mr Yanakov
(who is a representative of Powerboom Investments Limited);
Ms Grönberg (who is a representative of Vitalbond Limited) and
Mr Duvieusart (who is a representative of PPF Group). Mr Nesis is the
brother of the beneficial owner of Powerboom Investments Limited.
Save for the potential conflicts inherent in these relationships, there
are no potential conflicts of interest between the duties owed by the
Directors or senior management to the Company and their private
interests or other duties. The Company’s corporate governance
framework safeguards against any conflict of interest, including
complete independence of the Audit and Risk, Nomination and
Remuneration Committees and disclosure of any related party
transactions in the financial statements.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
81
CORPORATE GOVERNANCE
Directors’ interests are disclosed in annual declarations and the
Company Secretary is notified promptly of any changes to those
interests. Before each Board meeting, independent non-executive
Directors reconfirm their independence and all Directors disclose
whether they hold any interests in any matters to be reviewed at
the Board meeting.
The Board has determined Jonathan Best, Christine Coignard,
Leonard Homeniuk, Russell Skirrow, Tracey Kerr and Giacomo
Baizini to be independent non-executive Directors. Bobby Godsell
met the independence criteria on appointment.
Jonathan Best has been on the Board of the Company since
September 2011 and on the Board of JSC Polymetal since
December 2006, and his re-appointment is subject to particularly
rigorous review. The Board believes that Mr Best continues to
display all of the qualities of independence pursuant to the
criteria set out in the Code.
The Company considers that the Board and its Committees have
the appropriate balance of skills, experience, independence and
knowledge of the Company to enable them to discharge their
respective duties and responsibilities effectively. All Directors have
access to the advice and services of the Company Secretary,
and are able to take independent professional advice, if necessary,
at the Company’s expense.
Board meetings
In 2017, the Board met seven times and had additional training
sessions and informal discussions. Further business was approved
by a Board Committee on three occasions.
The Board is responsible for:
Strategy – defining the commercial strategy and long-term
objectives of the Group;
Expenditure – approving annual operating and capital expenditure
budgets and any material changes to them;
Governance – overseeing the Group’s operations, ensuring
competent and prudent management, sound planning, a strong
system of internal control, and compliance with all statutory and
regulatory obligations;
Performance – reviewing the performance of the Group in the light
of its business strategy, objectives, business plans and budgets and
ensuring that any necessary corrective action is taken;
Extension of Group activities – approving any material extension
of the Group’s activities into new businesses or geographic areas
and any decision to cease to operate all or any material part of the
Group’s business; and
Stakeholders communication – ensuring a mutual understanding
of objectives and maintaining a constructive dialogue with
stakeholders; and promoting a healthy corporate culture.
The following Board discussions, linked to the Company’s overall strategy, took place in 2017:
Pillars of value
Work of the Board in 2017
Pay significant and sustainable dividends through the cycle
Continue to grow our business without diluting its quality
Review of the annual budget
Capital structure and dividend policy review
Half-year and annual financial results
Financing & investor relations update (including peer case studies)
Annual discussion of strategic considerations
Komarovskoye status update
Reserves and resources reporting assurance and exploration report
Strategic objectives
Board discussions
Deliver robust operating and financial performance at existing mines
through cost control and reserve replacement
Quarterly review of the Company’s production results, estimated
production results for 2017 and production plan for 2018
Deliver medium-term growth through building and ramping up Kyzyl
Kyzyl status update
Build and advance long-term growth pipeline through opportunistic
M&A and greenfield exploration
Acquisitions and projects: post factum analysis
Nezhda, review and strategy update
Evaluation of Prognoz project
Maintain high standards of corporate governance and
sustainable development
Report on implementation of HSE plan for 2016 and HSE team
work plan for 2017
Sustainability strategy: progress and plans
Review of the Annual and Sustainability Reports
Annual review of effectiveness of the Company’s risk management
and control systems
Impact of base erosion and profit shifting (BEPS) framework
on Polymetal
Appointment of new Directors to the Board and its Committees
Annual review of the schedule of matters reserved for the
Board and terms of reference of the Board Committees
Update of Group policies
Annual internal evaluation of the Board and its Committees
The schedule of matters reserved to the Board is reviewed at least annually.
82
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Roles of the Chairman, Group CEO and Senior Independent Director
The Board has approved the division of responsibilities between the Chairman and the Group CEO and defined the role of the
Senior Independent Director (SID).
Chairman
Group CEO
The Group CEO exercises his role through his executive and/or
Director positions in the Group sub-holding companies. He reports
to the Chairman and the Board directly and upholds the Group’s
responsibilities to its shareholders, customers, employees and
other stakeholders. He is responsible for the management of
the Group and for developing the Group’s business strategy,
objectives, budget and forecasts, and overseeing their successful
implementation, once approved by the Board.
The Board interacts with management on a regular basis.
Directors invite senior managers to attend relevant parts of Board
and Committee meetings to report on agenda items and participate
in discussion.
The Group CEO’s responsibilities include:
• developing and proposing Group strategy, including communicating
annual plans and commercial objectives to the Board;
• upholding the Group’s responsibilities to its shareholders,
customers, employees and other stakeholders;
• identifying and executing strategic opportunities;
• reviewing the operational performance and strategic direction
of the Group;
• making recommendations on remuneration policies, executive
remuneration and terms of employment for senior employees;
• ensuring that the development needs of senior management are
identified and met;
• ensuring effective succession planning for senior management;
and
• ensuring effective communication with shareholders and that
appropriate, timely and accurate information is disclosed to the
market, with issues escalated promptly to management and
the Board.
The Chairman reports to the Board and is responsible for the
leadership and overall effectiveness of the Board and for setting
the Board’s agenda. Mr Godsell is able to commit sufficient time
to his role as non-executive Chairman of Polymetal International
and the Board believes that other commitments do not adversely
affect his contribution to the Company. Mr Godsell’s other
significant commitment is a non-executive directorship in the
South African Industrial Development Corporation. He is also the
Co-Chairman of the South African Millennium Labour Council.
Chairman’s responsibilities include:
• effective running of the Board;
• ensuring that there is appropriate delegation of authority
from the Board to executive management;
• promoting a culture of openness and debate by facilitating the
effective contribution of non-executive Directors and ensuring
constructive relations between executive and non-executive
Directors;
• encouraging active engagement by all members of the
Board and ensuring that the Directors receive accurate,
timely and clear information; and
• ensuring that the views of the shareholders are communicated
to the Board as a whole.
Senior Independent Director (SID)
Christine Coignard serves as a SID of Polymetal. In 2017,
Ms Coignard attended a series of one-on-one meetings with
institutional shareholders and investors, arranged as part of
the Company’s roadshow, and the investor events organised
by the Company’s brokers. The Board is regularly updated
on shareholders’ opinions following meetings with the
Directors and management.
From AGM 2018, Mr Oliveira will replace Ms Coignard as
Senior Independent Director.
SID’s responsibilities include:
• being available to major shareholders in order to listen to their
views and help develop a balanced understanding of their
issues and concerns; and
• to act as an intermediary for the other Directors if necessary.
Separate meetings are held between the non-executive Directors without the Chairman or the Group CEO being present; between non-
executive Directors without the Chairman, led by the SID, to appraise his performance annually and on such other occasions as appropriate;
and between the independent non-executive Directors without the other non-executive Directors being present. This includes both formal
and informal meetings.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
83
CORPORATE GOVERNANCE
Board composition
Board member
Bobby Godsell
Vitaly Nesis
Jonathan Best
Russell Skirrow
29 September 2011
29 September 2011
29 September 2011
29 September 2011
✓
Leonard Homeniuk
29 September 2011
Konstantin Yanakov
29 September 2011
Marina Grönberg
29 September 2011
Jean-Pascal Duvieusart 29 September 2011
Christine Coignard
Tracey Kerr
Giacomo Baizini
1 July 2014
1 January 2018
1 January 2018
Board and committee meeting attendance
Board member
Bobby Godsell
Vitaly Nesis
Jonathan Best
Russell Skirrow
Leonard Homeniuk
Konstantin Yanakov
Marina Grönberg
Jean-Pascal Duvieusart
Christine Coignard
Appointed
Executive
Non-
executive
Independent
Audit
and Risk
Committee
Remuneration
Committee
Nomination
Committee
Safety and
Sustainability
Committee
✓
✓
✓
✓
✓
✓
✓
✓
✓
✓
Chair
Chair
Member
Member
Member
Member
Member
Member
Chair
Member
Member
Chair
Member
Member
Member
Member
Member
✓
✓
✓
✓
✓
✓
Board
meetings1
(seven)
Audit and Risk
Committee
meetings2
(six)
Remuneration
Committee
meetings3
(four)
Nomination
Committee
meetings
(three)
Safety and
Sustainability
Committee
(six)
6
all
all
all
all
all
all
all
all
NA
NA
all
all
NA
NA
NA
NA
all
NA
NA
all
NA
all
NA
NA
NA
all
all
NA
NA
NA
all
NA
NA
NA
all
NA
5
NA
all
all
NA
all
NA
NA
1 Further business was approved by a Board Committee on three occasions (by way of a conference call between Messrs Godsell and Best).
2 Further business conducted by the Audit and Risk Committee was approved by written resolution on five further occasions.
3 Further business conducted by the Remuneration Committee was approved by written resolution on two further occasions.
Constructive use of the Annual General Meeting
The Board uses the AGM to communicate with investors and
to encourage their participation. To ensure the Company’s
shareholders have time to consider the Annual Report and Notice
of the AGM and lodge their proxy votes in good time, all meeting
materials are made available more than 20 working days prior to
the AGM. Separate resolutions are proposed on each substantially
separate subject and all resolutions are put to a poll. The Company
also offers shareholders the option to abstain.
Shareholders who are not able to attend the AGM are encouraged
to submit proxy votes either electronically or in paper format.
At the Company’s 2017 AGM, we received votes representing
approximately 69% of our issued share capital. The Company did
not have a significant percentage of shareholders voting against
any resolution.
The results of the proxy vote are presented at the AGM, with the final
results announced via the London Stock Exchange and available on
the website.
In addition, our AGM provides a valuable opportunity for
shareholders to meet with and put questions to the Directors in
person. The 2017 AGM was attended by the majority of Directors,
including the Chairs of the Audit and Risk, Remuneration,
Nomination and Safety and Sustainability Committees. The 2018
AGM of the Company will be held in London to enable easier
participation of shareholders in the meeting.
The primary means of communication with the majority of
our shareholders, who have not requested paper copies
of our documentation, is through our corporate website:
www.polymetalinternational.com.
Nomination Committee
The Nomination Committee is chaired by Mr Godsell and its other
members are Mr Homeniuk and Ms Coignard. Tracey Kerr became
a Committee member on 1 January 2018 and Mr Homeniuk will step
down on 25 April 2018. The Committee has responsibility for making
recommendations to the Board on the composition of the Board
and its Committees, including appointments of additional
and replacement Directors.
The Committee:
• leads the process for Board appointments and makes
recommendations to the Board;
• regularly reviews the Board structure, size and composition
(including skills, knowledge, independence, experience and
diversity) and makes recommendations to the Board about any
changes that the Committee considers necessary;
• considers plans and makes recommendations to the Board for
orderly succession to the Board and to senior management,
so as to maintain an appropriate balance of skills and experience
within the Company and on the Board and to ensure progressive
refreshing of the Board, taking into account the challenges and
opportunities facing the Company;
• keeps under review the leadership needs of the Group,
both executive and non-executive, with a view to ensuring
the continued ability of the Group to compete effectively in
the marketplace;
• evaluates the balance of skills, knowledge, experience,
independence and diversity of the Board before any appointment
is made by the Board, and in the light of this evaluation prepares
a description of the role and capabilities required for a particular
appointment and the expected time commitment; and
• reviews the results of the Board’s performance evaluation
process that relates to the composition of the Board and whether
non-executive Directors are spending enough time in discharging
their duties.
There were three formal meetings of the Nomination Committee
in 2017. At its meetings, the Committee:
• continued to review skills and experience of the Board,
age and term limits of Directors, concept of independence;
reviewed composition of the Board and its Committees;
• reviewed results of interviews with all directors and consider
what skills would be required for the new independent
non-executive Director appointments;
• led independent non-executive Director succession programme,
which resulted in the appointment of three new independent
non-executive Directors;
• supervised the start of the tailored induction process;
• continued succession discussion at executive level, including
formalised Group CEO succession planning;
• made recommendations to the Board about the re-election of
Directors at the 2017 AGM;
• reviewed the statement for the Annual Report about activities
of the Committee;
• reviewed HR reports (including headcount, costs, diversity,
professional development and Young Leaders Programme
information, employment culture and approach to the
learning process);
• reviewed diversity policy implementation, including equality audit;
• reviewed Committee’s performance and its terms of reference;
and
• approved working plan for the year.
The Nomination Committee acknowledges that a deep and
rigorous approach to succession planning is vital for the Company’s
continuing success and ensures that leadership is fully aligned to
corporate strategy, both at Board and senior management levels.
The Young Leaders Programme is now fully established and will
continue in 2018; this programme helps to evaluate the talent pool
and tailors training for the future senior management needs of the
Group. As part of this programme, meetings take place between
young leaders and Board members so that the Board has a chance
to challenge the leaders and debate with them and the leaders can
ask questions and interact directly with the Board. One-third of
the programme participants in 2017 were women. Following the
meeting, feedback is provided by both the Directors and young
leaders and a follow up plan is put in place.
In 2017, the Directors and young leaders had in-depth discussion
about corporate culture, including recognition of the value of culture,
leadership, openness and accountability, integration, assessment,
measurement and engagement, and alignment of values and
incentives. The key areas identified by young leaders in achieving
a strong corporate culture were openness at all levels, honesty,
transparency, willingness to be engaged in a dialogue, hunger for
innovation. Accountability at all levels, starting from the Board of
Directors and throughout the Company down to individual
employees, was noted as a key to the successful implementation
of a corporate culture. Young leaders outlined the key corporate
values of the Company and identified indicators of them being used,
summarising that supporting and encouraging of behaviours that
correspond to these values was the most important. The most
effective way to transfer corporate values was through the
employees, who accept and share these values, both at
work and in their everyday lives.
Training opportunities for all of the Group’s employees continue
to be monitored. Employee feedback systems and grievance
handling procedures operate at all the Group companies.
The Board welcomes diversity at all levels; it believes that the
right way to approach diversity is by putting competence first
and seeking the right qualities for each and every appointment.
Diversity becomes a distinct advantage with such an approach and
is in line with the Company’s objective of promoting women at all
levels of the Group. The Company facilitates promotion of women
within its offices and operations, including hiring women in positions
traditionally held by men. In 2017, the proportion of women working
in the Group remained stable: 21% (2016: 21%); women represent
22% of senior management positions (2016: 22%); and 42% of
employees with vocational training or higher education (2016: 42%).
Women representation at the Board level was 22% (2016: 22%)
but with the recent appointment of Ms Kerr has increased to 27%.
Regular monitoring of compliance in relation to the Diversity Policy
is undertaken by the HR department, which also ensures that our
internal procedures are implemented through all Group companies.
The Nomination Committee closely monitors the efforts of
management in increasing diversity, paying special attention to
more recent acquisitions in areas with a traditional male workforce.
Further information on our steps to promote diversity in the
Company is outlined in the Safety and Sustainability Report.
84
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
85
Fidelio’s relationship with Polymetal focused only on
Board effectiveness; Fidelio has not provided recruitment,
search or other advisory services to Polymetal.
Committee member induction included familiarising new Directors
with associated policies, committee terms of references and relevant
guidance on best practice.
In 2017, the Board and its Committees conducted informal
internal evaluation.
Re-election policies
In accordance with the UK Code, all Directors are subject to
annual re-election. Full terms and conditions of the appointment
of non-executive Directors are available for inspection at the
Company’s registered office.
The Directors’ biographical details are set out on pages 78-79.
Following their performance evaluations, the Board and
Chairman consider that each of the Directors standing for election
or re-election will continue to be an effective contributor to the
Group’s success and demonstrates commitment to his or her role.
The Board believes that the Chairman continues to be effective
and to demonstrate commitment to his role.
Induction
To provide a thorough induction to new Board members, an
induction data base has been generated and contained information
about the Company, its current Board and Committee members,
sector market update, corporate documents and Group policies.
The Directors were also updated on the corporate governance rules
and practices including those related to their role as non-executive
Directors. As part of the induction process new Directors familiarised
themselves with the Board and Committee meetings and site visits
arrangements, along with existing remuneration and compensation
procedures, Board and Committee meetings schedules and
external training options for the next year. The results of the Board
and Committees evaluation, D&O insurance policy, AGM results,
as well as Company’s annual, interim and quarterly reports and
sustainability reports have also been added to the induction data
base to allow candidates to fully understand the Company’s and
Board’s activities.
In addition to the data base, induction meetings were arranged,
where new Directors could discuss appropriate issues with the fellow
Directors and Committee members, Group CEO and the Executive
team. Induction meetings took place at the beginning of 2018.
Access to all previous meeting materials and Board and Committee
minutes has been provided upon appointment.
Directors and Chairs of the Board Committees regularly receive
updates on changes to corporate governance and regulatory
requirements and other changes affecting the Company. The Board
is kept informed of relevant developments in the Company by way of
monthly management reports, including comprehensive information
on operating and financial performance, and the progress of
capital projects.
Board site visits
Annual site visits greatly improve the Board’s understanding of
Polymetal’s operations and organisation, and contribute to the
Board’s evaluation of the Group’s business plan and strategy. On a
three-day visit to the Company’s operations in Armenia during 2017,
the Board of Directors gained valuable first-hand insights into local
management, challenges and opportunities. They met with key mine
executives and employees, and were given a detailed tour of
production facilities at the Kapan mine, including a visit to the
underground operations. During 2016, the Board visited Company’s
operations in Northern Urals, Russia, including the Voro mine, and
North Kaluga exploration project. Since the IPO the Directors have
visited all key operations of the Company.
CORPORATE GOVERNANCE
No instances of discrimination towards the Group’s employees
have been reported. All candidates and employees have equal
opportunities regardless of gender, age, race, nationality, language,
origin, wealth, residence, religion and other beliefs, social
membership or other personal circumstances. The Company’s
Code of Conduct and Policy on Staff and Management Diversity
outline the principles and approach to diversity and prohibit any
discrimination. The Group is also in full compliance with all local
legislation in the countries where it operates that prohibits any
discrimination in payment and promotion.
Full terms of reference of the Nomination Committee are available
on the Company’s website: www.polymetalinternational.com.
The Board considers that the composition of the Board and
the Nomination Committee complies with the requirements of
the UK Code.
Board evaluation
The first externally facilitated Board evaluation took place in 2013.
In accordance with corporate governance best practices,
Polymetal carried out an externally facilitated Board evaluation in
2016. Fidelio Partners, an independent Board Development and
Executive Search consultancy, conducted the evaluation.
The purpose of the evaluation was an in-depth review of Board
effectiveness. The evaluation covered a number of aspects relating
to the work of the Board and also provided suggestions and
recommendations to further enhance Board effectiveness.
Based on interviews with Board members and the review of various
materials, Fidelio concluded that the Polymetal Board is aware
of its duties, it demonstrates a strong commitment to good
governance and best practice. The Board recognised the
importance of the UK Code. The Chairman was considered to
be skilled and effective in leading the Board and Board meetings;
Board Directors were recognised as well prepared; and there was
a general trend of improved reporting to the Board.
Fidelio highlighted several themes arising from the Board evaluation.
These themes were forward-looking and provided a focal point
for the Board as it considers greater Board effectiveness;
recommendations and suggestions for the Board’s consideration
were provided. Fidelio facilitated a discussion with all Board
members summarising the evaluation and focusing on the
themes for enhancing Board effectiveness. The Board discussed
the evaluation and its findings in individual Committees and also
at subsequent Board meetings.
In 2017, the Board took steps to implement key recommendations
from the external evaluation conducted by Fidelio in 2016. These are
set out below. The Board and Committees conducted an informal
internal evaluation in 2017.
Areas for Board focus
Next steps for discussion
Actions in 2017
Polymetal’s distinctive
position – implications
for the Board
The Company operates in
the emerging markets of
the former Soviet Union
with strong shareholder
base in Europe and
London premium listing.
More cohesive understanding of Board
engagement and rounded understanding
of views of all shareholders.
Given Polymetal’s London listing, the Board
recognised that not having a UK/London
based Board Member was a disadvantage.
This addition to the Board could provide a
greater awareness of how the investment
community is thinking and also connectivity
to key governance debates taking place in
the UK.
The challenge of
succession
Recognised pressure for
forthcoming Board
refreshment, and importantly
that Polymetal’s strong
Group CEO would be
difficult to replace.
Safety first
Aim to achieve zero fatalities.
The Nomination Committee has a
good grasp of the views of institutional
shareholders and proxy advisors,
particularly ahead of Board refreshment.
Skills review required today and experience
that would be needed going forward.
Considering Board refreshment and
creating succession pipeline.
The strength of the Group CEO is seen
as a major asset for Polymetal and this
is recognised by investors and by the
Board as a whole.
The Board has clear concern regarding
the level of fatalities and monitors the
investigation process as well as the follow
up safety measures.
Ensure clear communication between
the Board and Safety and Sustainability
Committee with focus on milestones and
key initiatives.
As part of succession planning, the following
appointments were made:
Mr Baizini. He has experience working in both
Western and Eastern companies and is fluent in Russian.
Ms Kerr. She is London-based and has 30 years’
experience in the international mining industry,
including safety and sustainability.
Mr Oliveira. He has over 16 years of experience in
engaging with London-based institutional investors,
including in the role of senior independent director
of a large mining company.
Directors are regularly updated on investor
feedback from the roadshows by the
Group CEO and senior management.
The Board and senior management actively engaged
with the shareholders on Board succession.
Comprehensive Directors’ skills review was performed
by the Nomination Committee, which included individual
interviews with Directors.
Three new non-executive Directors will offer themselves
for election at the AGM 2018 and two non-executive
Directors will step down.
While there is no imminent Group CEO retention risk,
the Board recognises its responsibility to investors to
ensure structured succession planning.
The Safety and Sustainability Committee continues to
oversee and support the work of the Executive team in
reducing fatalities through establishing safety culture.
An annual plan for the Committee’s work has been drawn
up in accordance with its terms of reference, internal
processes and the relevant market practice.
Ms Kerr joined the Committee as its member and subject
to her being elected as a Director at the 2018 AGM,
she will become the Chair of the Committee, bringing a
wealth of relevant experience to the role.
86
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
87
AUDIT AND RISK COMMITTEE REPORT
Polymetal’s resilient operating and
financial performance owes a great deal to
the disciplined commitment to sound risk
management and robust internal controls
across the business.
Dear Shareholders
It is a given that both the precious metals market and the economies
in which Polymetal operates are subject to volatility and sometimes
significant shifts in commodity prices and exchange rates. However,
the Audit and Risk Committee continues to focus on ensuring that
the business has sound risk management and robust internal
controls in place to adjust our exposure to these macroeconomic
variables, as well as for changes in the regulatory and
accounting frameworks.
Performance evaluation and development
In 2017, we conducted an in-depth self-evaluation of the
performance of the Committee, inviting input from the many parties
with which we interact. While all parties agreed that in general the
work of the Committee is effective, certain areas of focus and further
development were identified. During the year a great deal of time
was spent addressing these – we have already made certain
improvements on issues raised and the few remaining outstanding
matters have been factored into our work plan for 2018.
As a Committee, we should also evolve and develop so I am
delighted to announce that Giacomo Baizini was appointed
as a Committee member on 1 January 2018. His strong financial
background and experience in our industry and of the Russian market
will be a real asset. In addition, Ollie Oliviera will stand for election at
the 2018 AGM. Existing Committee member, Russell Skirrow, will not
be offering himself for re-election, having served on the Board for
approximately seven years since the IPO and I would like to thank him
for the valuable contribution he has made.
Effective, independent working relationships
Of course, our effectiveness places great reliance on the excellent
work and commitment of the internal audit and risk functions, which
are promoting risk awareness and understanding of its impacts at
all levels. Their particular focus this year (and ongoing) has as a
consequence of the self evaluation exercise been the strengthening
of the Group internal audit function and the quality of its reporting to
and interaction with the Committee, with significant achievements
already made.
The Audit and Risk Committee has to be prepared to take a robust
stand on matters concerning the Company’s governance. We enjoy
a frank and open working relationship with Polymetal’s Chairman,
Group CEO, Chief Financial Officer, the external lead audit partner
and head of internal audit – all key players in upholding good
standards of corporate governance across the business. This and
a high level of mutual respect on both sides enables us to address
and deal effectively with any issues should they arise.
88
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
The Audit and Risk Committee is a fully independent body,
consisting only of independent non-executive Directors with relevant
skills and experience in financial reporting and risk management.
In 2017, the Audit and Risk Committee met six times with further
business conducted by the Committee and approved by written
resolution on five additional occasions. The Committee also held a
joint meeting with the Safety and Sustainability Committee for an
in-depth review of environmental and safety risks and of the results
of the internal audit.
Our focus during 2017
The Audit and Risk Committee dealt with the following matters:
• reviewed and recommended for approval financial and risk
information included in the Annual Report 2016;
• reviewed and recommended for approval Polymetal’s results
for the six months to 30 June 2017;
• supervised preparation of the longer-term viability statement
for the Company for 2017;
• supervised compliance with the Company’s anti-bribery
and corruption, and whistleblowing policies and procedures;
• approved significant transactions;
• approved the terms of external audit engagement, including
the scope of the audit and the Group’s external audit plan, and
recommended for approval the interim and year-end audit fees;
• reviewed the actual external audit fee in 2017 compared
with the authorised amount;
• reviewed the independence and effectiveness of the
external auditor;
• recommended the re-appointment of Deloitte LLP as
external auditor;
• reviewed the critical risks and exposures of the Group,
including significant judgements, impairments and tax risks;
• reviewed the Group’s internal audit plan, internal audit charter
and monitored the effectiveness of internal audit function;
• performed an in-depth analysis of some of the Company’s
main risks and jointly reviewed the environmental and safety
risks and results of the internal audit with the Safety and
Sustainability Committee;
• reviewed the capability of the Group’s finance team;
• performed an extended internal assessment of the Committee’s
effectiveness and adopted an action plan for the areas that need
enhancement or further development;
• closely monitored developments in cyber security threats and
the management of cyber and information governance processes,
recommended and reviewed external cyber risk evaluation carried
out at the beginning of 2018. The Company does not consider
cyber risk to be a principal risk for the Group;
• discussed and approved the Committee work plan; and
• reviewed corporate governance changes and planned for
continued compliance in 2018.
Polymetal is committed to objectivity and transparency in its
approach to corporate governance, which is also reflected in the
integrity of our financial statements. By instilling a disciplined focus
on consistent quality throughout our reporting, internal control and
risk management processes across the business, we have resilient
systems and processes in place that enable the Committee to
successfully deal with the issues presented by market
unpredictability and changes in legislation.
Jonathan Best
Chair, Audit and Risk Committee
Audit and Risk Committee
The Audit and Risk Committee is chaired by Mr Best and its
other members are Mr Skirrow and Ms Coignard, all independent
non-executive Directors. In the reporting period, all members of
the Committee had relevant financial experience and competence
relevant to the sector in which the Company is operating;
Mr Best has competence in accounting (refer to page 79 for details).
Mr Baizini became a member of the Committee on 1 January 2018
and Mr Oliveira will be joining the Committee, following his
appointment at the 2018 AGM. Mr Skirrow will not be offering
himself for re-election at the 2018 AGM. Ms Coignard is Chair
and Mr Best is a member of the Remuneration Committee, which
ensures continuity between the workings of both Committees.
The responsibilities of the Audit and Risk Committee comprise:
• monitoring the integrity of the Group’s consolidated financial
statements and reviewing its annual and interim financial
statements, including, but not limited to the consistency of
and any changes to, accounting and treasury policies across
the Company and the Group; the methods used to account
for significant or unusual transactions; the reasonableness of
significant estimates and judgements, taking into account the
views of the external auditor; and the clarity and completeness
of disclosure in the consolidated financial statements;
• considering and making recommendations to the Board,
in relation to the appointment, re-appointment, resignation
or removal of the Group’s external auditor, for consideration
by the shareholders at the AGM;
• overseeing the Group’s relationship with its external auditor
and reviewing the effectiveness of the external audit process,
taking into account relevant UK professional and regulatory
requirements; the Committee meets with the external auditor at
least once a year, without management being present, to discuss
their remit and any issues arising from the audit;
• reviewing the independence and objectivity of the external auditor
and the appropriateness of the provision of any non-audit services
by the external auditor, taking into account existing policies and
procedures, as well as professional and regulatory requirements;
• reviewing the effectiveness of the Group’s system of internal
controls and risk management systems and ensuring
shareholders’ interests are properly protected in relation to
financial reporting and internal control;
• monitoring and reviewing the effectiveness of the Group’s
internal audit function in the context of the Group’s overall
risk management system;
• reviewing the Group’s policies and procedures for preventing and
detecting fraud, the systems and controls in place for preventing
bribery, and its policies for ensuring that the Group complies with
relevant regulatory and legal requirements; and
• approving significant transactions.
Full terms of reference of the Audit and Risk Committee are available
on the Company’s website: www.polymetalinternational.com.
Ultimate responsibility for reviewing and approving the interim and
annual financial statements remains with the Board.
The Committee gives due consideration to applicable laws and
regulations, the provisions of the UK Code and the requirements
of the Listing Rules.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
89
AUDIT AND RISK COMMITTEE REPORT
Focus during 2017
During this year, the Audit and Risk Committee focused on:
• evaluating the recoverability of goodwill and operating and
development assets. The Committee examined the potential
indicators of impairment (or impairment reversal, where
appropriate) for each of the cash-generating units (CGUs) and the
life-of-mine financial models used for assessing the fair value less
costs to sell of the individual CGUs tested for impairment. The
Committee examined and challenged the commodity price,
discount rate and exchange rate assumptions used by
management in its impairment tests;
• evaluating the recoverability of metal inventories. The Committee
examined the price assumptions used by management as well as
unit costs and other internal assumptions used in determining the
net realisable value of unfinished goods within metal inventories
(ore and concentrate stockpiles);
• evaluating the recoverability of exploration and evaluation assets.
The Committee assessed management’s approach to determine
whether the existing exploration and evaluation assets are likely to
generate future economic benefits and whether any indicators of
impairment had been identified;
• reviewing tax exposures. The Committee evaluated management’s
assessment of various tax risks and appropriateness of provisions
made in the financial statements, where applicable;
• internal controls and the risk of misstatement. The Committee
reviewed reporting from internal audit in respect of its audit plan
and discussed all significant findings as well as key controls for
major financial reporting areas, and performed an in-depth
review of one of the operations (Varvara) prepared by the internal
control department;
• reviewing the capital structure decisions and dividend policy; and
• reviewing the longer-term viability statement, including the
process and assessment of the Group’s prospects made
by management, basis of preparation and the results of risk
scenario analysis.
The Chair of the Audit and Risk Committee makes himself available
to major institutional shareholders annually to discuss the
Company’s annual reporting to shareholders as part of the
Company’s investor days. He is also available for one-on-one
meetings with key shareholders at their request.
Following the assessment of the Committee’s performance during
the Board external evaluation in 2016, no threats to the effectiveness
of the Committee were identified. At the same time, fellow Directors
reported a high level of satisfaction with the Audit Committee.
In 2017, the Committee carried out a self-evaluation of its
performance. The members of the Committee, CFO, external audit
partner and head of internal audit completed a thorough
assessment questionnaire on the work of the Audit and Risk
Committee and other related issues, including external audit and the
quality, experience and expertise of the internal audit function.
Based on the assessment results, the areas that needed attention
were aggregated and followed up by appropriate actions in 2017,
including a Committee renewal programme, additional management
reporting, internal audit department staffing review and a more
in-depth understanding of the scope of external audit. Outstanding
issues have been included in the 2018 Committee work plan.
The Board considers that the Audit and Risk Committee complies
with the provisions of the UK Code, FRC Guidance on Audit
Committees and Guidance on Risk Management, Internal Control
and Related Financial and Business Reporting.
90
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ANNUAL REPORT & ACCOUNTS 2017
External auditor appointment
The re-appointment of Deloitte LLP as the Group’s external auditor is
reviewed annually by the Audit and Risk Committee. Deloitte LLP was
appointed auditor in 2011, with Deloitte CIS having been auditor of
JSC Polymetal since the last tendering process in 2007. The Group
has a policy of tendering the external audit at least every ten years.
The Committee’s assessment of the external auditor’s performance
and independence underpins its recommendation to the Board to
propose to shareholders the re-appointment of Deloitte LLP as
auditor until the conclusion of the AGM in 2019. Resolutions to
authorise the Board to re-appoint and determine the auditor’s
remuneration will be proposed at the AGM on 25 April 2018.
We intend to tender our external audit in 2019 for the 2020 audit,
which will coincide with the completion of the five-year term of our
current audit partner. At that point, Deloitte LLP will have been our
auditor for 10 years, following our listing on the London Stock
Exchange. It is our intention that Deloitte will be invited to participate
in this tender process, along with other appropriately qualified
international audit firms. The Company is in compliance with the
provisions of The Statutory Audit Services for Large Companies
Market Investigation Order 2014.
Non-audit services by the external auditors
The Audit and Risk Committee monitors the Company’s relationship
with its external auditor relating to the provision of non-audit
services to ensure that auditor objectivity and independence are
safeguarded. This is achieved by disclosure of the extent and nature
of non-audit services (see Note 14 to the consolidated financial
statements) and the prohibition of selected services being provided
by the external auditor.
Following the introduction of new EU Audit legislation and changes
to the UK Ethical Standard, which introduced new restrictions and
prohibitions on non-audit services to the Public Interest Entities
incorporated in the European Economic Area (EEA PIEs), the Audit
Committee has chosen to voluntarily apply the new requirements
as if Polymetal was a EEA PIE. The policy governing the provision
of non-audit services by the external auditor approved by the
Committee defines permitted audit and non-audit services.
Pre-approval thresholds are in place for the provision of non-audit
services by the external auditor, being: pre-approval by the Chief
Financial Officer of JSC Polymetal if the services are provided to a
Russian entity, Chief Financial Officers of Kazakh or Armenian
business entities respectively, and by the Director of the Cyprus
office of Polymetal International plc if the services are provided to
other Group companies if below US$5,000; by the Chair of the
Audit and Risk Committee if between US$5,000 and US$20,000;
and by the Audit and Risk Committee if above US$20,000.
Certain permitted types of non-audit work may be undertaken by
the auditor without prior referral to the Audit and Risk Committee up
to a cumulative annual value of US$100,000. Any further non-audit
work is subject to approval by the Audit and Risk Committee in
further tranches of US$100,000. In the event that the cumulative
value of non-audit fees exceeds US$500,000 in any given year,
separate approval by the Audit and Risk Committee is required
explaining why there is no threat to independence.
In 2017, non-audit fees were US$0.44 million of which US$0.42
million were incurred for audit-related assurance services for the
Group’s half-year review. Non-audit fees represented 38% of the
2017 audit fee (2016: 40%). Non-audit fees excluding audit-related
services amounted to US$0.01 million, or 1% (2016: 2%) of total
fees for audit and audit-related services.
The Audit and Risk Committee has considered information
pertaining to the balance between fees for audit and non-audit work
for the Group in 2017, and concluded that the nature and extent of
non-audit services provided do not present a threat to the external
auditor’s objectivity or independence.
Auditor independence
The auditors are required each year to confirm in writing
to the Committee that they have complied with the independence
rules of their profession and regulations governing independence,
and that they have complied with the requirements of the Company’s
policy on provision of non-audit services. The external auditor is
required to maintain appropriate records to provide reasonable
assurance that its independence from the Company is not impaired.
Risk management and internal control
Risk management is the responsibility of the Board and is integral
to the achievement of Group’s strategic objectives. The Board
considered the Group’s management responsiveness to changes
within its business environment. The Board is satisfied that there is
an ongoing process, which was operational during the year,
and up to the date of approval of the Annual Report, for identifying,
evaluating and managing the principle risks faced by the Group.
A copy of the Policy on Independence and the Provision of
Non-Audit Services is available on the Company’s website:
www.polymetalinternational.com.
Review of the effectiveness of the external audit
process and audit quality
The Audit and Risk Committee has adopted a formal framework in
its review of the effectiveness of the external audit process and audit
quality which focuses on the following areas:
• the audit partners, with particular focus on the lead audit
engagement partner. The Company has been working with
the existing audit partner since 2015;
• the audit team;
• planning and scope of the audit and identification of areas
of audit risk;
• execution of the audit;
• the role of management in an effective audit process;
• communications by the auditor with the Audit and Risk
Committee, and how the auditor supports the work of the
Audit and Risk Committee;
• how the audit contributes insights and adds value; and
• the independence and objectivity of the audit firm and the quality
of the formal audit report to shareholders.
An auditor assessment is completed annually by each member of
the Audit and Risk Committee and by the CFO. Feedback is also
sought from the Group CEO, other members of the finance team,
divisional management and the head of internal audit.
The assessment tool adopted is comprehensive and includes
detailed questions which are completed by way of a formal
questionnaire every three years, while the key areas are reviewed
every year. The feedback from this process is considered by the
Audit and Risk Committee, and is provided both to the auditor and
to management. Action plans arising are also reviewed by the
Committee. The most recent comprehensive audit quality evaluation
was performed in March 2017.
The effectiveness of management in the external audit process is
assessed principally in relation to the timely identification and
resolution of areas of accounting judgement, the quality and
timeliness of papers analysing those judgements, management’s
approach to the value of the independent audit, the booking of audit
adjustments arising (if any) and the timely provision of draft public
documents for review by the auditor and the Audit and
Risk Committee.
The Board also takes account of material changes and trends in
the risk profile and considers whether the control system, including
reporting, adequately supports the Board in achieving its risk
management objectives.
The Group enforces a responsible business culture throughout all
Group entities to mitigate principle risks and to keep residual risk
at an acceptable level. The Audit and Risk Committee assists the
Board with its assessment of the Group’s principal risks and its
review of the effectiveness of the risk management process. The
Committee reviews reports on the status of Group-level risk profiles
and controls in place during its meetings throughout the year.
The Company aims to ensure that all the components of its risk
management system are embedded into day-to-day operations so
that all principal risks are identified and managed on a timely and
accurate basis. The process for identification and assessment of
principal risks combines a top-down and bottom-up approach.
The Group has implemented enterprise and operational policies
and controls to manage risks that may affect achievement of the
Group’s strategic objectives. Transaction-level internal controls are
designed to enhance the value of operational-level objectives and
accountability of new projects and initiatives.
In conducting its annual review of the effectiveness of risk
management and internal control system (including financial,
operating and compliance controls), the Board considers the key
findings from the ongoing monitoring and reporting processes,
management representations and independent assurance reports.
Internal audit
The internal audit function supports Directors, through the Audit and
Risk Committee, with an objective evaluation of the Company’s and
the Group’s governance framework. The internal audit function also
aims to raise levels of understanding and awareness of risk and
control throughout the Group.
The head of internal audit reports to the Group CEO and,
through the Audit and Risk Committee, to the Board of Directors.
The internal audit function additionally reports its findings to
members of the Group’s executive management.
The internal audit function’s annual work plan is approved by the
Audit and Risk Committee. It is based on a risk tolerance evaluation
that ensures the achievement of Group’s operating objectives and
focuses on the principle risks of Group’s risk profile.
In addition to the Audit and Risk Committee assessment,
the internal audit function uses an annual self-certification process,
which requires managers throughout the Group to personally
confirm the testing of internal controls and compliance with Group
policies within their business or function, as well as the steps taken
to address actual or potential issues that are identified. The internal
audit function also performs periodic external certification, the most
recent of which took place in February 2016.
Management provides a timely response to issues raised by internal
audit. Where possible, the issues are resolved within one reporting
period. The results of the self-certification as well as management
response thereto are provided to the Committee along with other
reports on the internal audit activities.
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91
AUDIT AND RISK COMMITTEE REPORT
Internal control framework and activities
The management structure of the Group and internal policies and
procedures are aimed at maintaining a robust control framework
within the Group encourage the achievement of strategic objectives
within the set risk tolerance levels.
This framework includes:
• an appropriate tone set from the top (Board level),
aimed at building the appropriate control environment
and ethical climate;
• management support of a comprehensive risk management
system (for more detail please refer to pages 70-76);
• strong segregation of duties including internal controls
over sensitive transactions;
• specific control activities implemented at all levels of the Group;
and
• a periodic review of the effectiveness of internal controls.
The governance framework reflects the specific structure and
management of the Group, where authority and control are
delegated by the Board to different levels, from senior management
to the managers of the Group’s operating entities and then
cascaded down to business and project managers as appropriate.
Within this framework, authority is delegated with clearly prescribed
limits and decisions are escalated where either project size or risk
profile require a higher level of authority. In addition to controls
operating at transaction level (production, exploration, construction,
procurement), the control framework also includes a set of general
procedures for transaction approval, financial accounting, reporting
and budgeting – see details on this page.
The Board confirms that the actions it considers necessary have
been or are being taken to remedy any failings or weaknesses in the
Group’s system of internal controls. This has involved considering
the matters reported to it and developing plans and programmes
that it believes are reasonable in the circumstances. Based on
the results of the review of risk management and internal control
activities undertaken by the Board and the Audit and Risk
Committee, the Board considers that the risk management and
internal control systems are in accordance with the relevant
principles and provisions of the UK Code and other
applicable guidance.
Financial reporting systems
The quality of financial accounting and reporting is ensured
through a set of control procedures in the following areas:
accounting methodology, preliminary review of new transactions,
documentation, accounting techniques and financial closing
procedures. Accounting policies are developed centrally for
each of the Group’s subsidiaries and are adapted for the specifics
of each entity and Group-wide policies. Employees responsible
for accounting and reporting functions have powers to review
upcoming transactions and propose adjustments, where necessary,
to ensure proper accounting and tax treatments. The use of a
centralised Enterprise Resource Planning (ERP) system in all major
Group companies ensures the unification of the business and
accounting processes. The Group implements a multi-level set of
controls over financial and accounting data recorded in the system.
These controls involve the accounting department of each
subsidiary, senior management of the subsidiary and controls at
the relevant headquarters level. In addition, the accounting and
reporting data are regularly audited by internal and external auditors.
Procedures for approval of capital and current expenditures
The Group prepares annual operating and capital expenditure
budgets based on its current and strategic goals and objectives.
In addition to periodic control of actual versus budgeted financial
performance, a procedure of ongoing control and authorisation
of expenses is in place. The current system of pre-approval of
significant transactions, along with accounting procedures in
the ERP system, achieves a level of control over the amount
and appropriateness of expenses.
Treasury operations
The Group operates a centralised treasury function, which is
responsible for payments on behalf of all operating subsidiaries of
the Group. Use of this centralised system achieves the best level of
control over the payments function without compromising the speed
and reliability of payments.
All transactions with banks on accounts maintenance, deposits and
borrowings and foreign currency transactions are also performed at
relevant headquarters level in compliance with the treasury policy
approved by the Board.
Controls over IT systems used in financial accounting
and reporting
The Group uses a 1C:Enterprise 8 ERP system for the automation of
everyday enterprise activities. These include various business tasks
within economic and management functions, such as management
accounting, business accounting, HR management, supplier
relationship management (SRM) and material requirements
planning (MRP). The Group also uses the ERP system for budgeting,
accounting, HR record-keeping and payroll, supply chain
management, operational reporting and procurement.
The Group operates an IT management framework based on COBIT
(Control Objectives for Information and Related Technology), which
provides a complete set of high-level requirements to be considered
for effective control of each IT process. At the beginning of 2018,
an external audit of the IT controls was carried out, and no critical
weaknesses of the control system and procedures were revealed.
The external audit was carried out by an independent Center for
Cyber Security, Jet Infosystem. No other services were provided
by Jet Infosystem.
UK Bribery Act 2010
The Company and its Directors are committed to ensuring
adherence to the highest legal and ethical standards.
This is reflected in every aspect of the way the Group operates.
Bribery is a criminal offence in the countries in which the Group
operates. Corrupt acts expose the Group and its employees to the
risk of prosecution, fines and imprisonment, as well as endangering
the Company’s reputation. The Group has a Code of Conduct in
place, which refers to its Anti-Bribery and Corruption Policy.
The policy extends across all of the Group’s business dealings in
all countries and territories in which the Group operates and applies
to Directors, managers and all employees of the Group, as well as
relevant business partners and other relevant individuals
and entities.
The Board attaches the utmost importance to this policy and applies
a zero-tolerance approach to acts of bribery and corruption by any
of the Group’s employees or by business partners working on
the Group’s behalf. The policy prohibits the payment, offer or
authorisation of bribes, the receipt or acceptance of a bribe, or
the payment, offer or promise to pay any facilitating payments.
Any breach of this policy is regarded as a serious matter by the
Company and is likely to result in disciplinary action.
As part of implementation of internal procedures to comply with the
UK Bribery Act, the Group has a formalised Whistle-Blowing Policy
which defines the processes in place for staff to communicate, in
confidence, concerns about possible improprieties, unethical or
illegal activities and ensures that arrangements are in place for
the independent investigation of such matters.
The Company affirms that it has not denied any personnel access
to the Audit and Risk Committee and that it has provided protection
to whistle-blowers from adverse personnel action.
All policies and procedures on prevention of bribery and
corruption are annually reviewed by the Audit and Risk Committee
for any changes required to be recommended to the Board.
The management reports to the Committee on the implementation
of policies and procedures within the Group’s operations are
reviewed on a regular basis as well.
The Code of Conduct, Anti-Bribery and Corruption Policy and the
Whistle-Blowing Policy are available on the Company’s website:
www.polymetalinternational.com.
Jonathan Best
Chair, Audit and Risk Committee
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
93
REMUNERATION REPORT
Throughout the Company we aim at rewarding
our people fairly in line with the Company’s
strategic, operational and financial objectives
in creating long-term sustainable
stakeholders’ value.
Dear Shareholders
Following the extensive review of our Remuneration Policy in 2016,
we are delighted that 99.10% of shareholders approved the
Company’s revised Remuneration Policy at the 2017 Annual General
Meeting, which applies for a period of three years until May 2020.
Our Remuneration Report detailing remuneration outcomes for
2016 also received strong support from 99.63% of shareholders.
As outlined in the Chairman’s Statement and reported in more detail
in the Group CEO’s Review, Polymetal maintained its track record
of solid operational delivery and project execution, meeting our
increased production guidance for the sixth consecutive year.
Over recent years, our management team further consolidated
and improved the performance of existing assets and increased
the resource base through exploration and acquisitions. This has
led to good free cash flow generation, as reflected in the significant
dividends of US$1,048 million paid to our shareholders since the
IPO in 2011. At the year end, Polymetal had delivered a 4.4%
dividend yield on a three-year average basis.
At the same time, the Company continues to meet the increasingly
demanding requirements of a London premium-listed company,
in terms of environmental, social and governance matters.
Some 70 separate KPI metrics are included in the variable part
of remuneration at all levels of the organisation to reward those
employees who are able make a difference. Polymetal is included
in the FTSE4Good, STOXX Global ESG Leaders and Euronext-Vigeo
indices and supports the Carbon Disclosure Project as well as the
UN Global Compact and Global Reporting Initiative.
Our ability to retain employees at all levels of the organisation
remains high, despite strong competition for talent in our industry
and regions of operation. The Company’s commitment to the
highest ethical standards, its operational excellence and
implementation of international best practice is reflected in
our staff turnover, that has been steadily reducing over the
last seven years and was 5.4% in 2017.
In our 2017 Remuneration Report, we outline how the Committee
supervised implementation of the approved Remuneration Policy,
including planned base-salary increases, annual bonuses and the
grant of performance shares. The Company performed well on all
metrics and this was reflected in the Group CEO’s remuneration.
The Committee applied no discretion in its decision.
Taking into consideration the key conclusions of the extensive external
Board review undertaken in 2016, the Committee performed its own
comprehensive effectiveness review in 2017, including refining the
94
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Committee’s priorities. As a FTSE 250 company listed on the London
Stock Exchange, our forward-looking action plan includes measures
to ensure that we stay on top of the increasingly complex and rapidly
changing regulatory framework on remuneration matters. We are also
working jointly with other Committees, largely in reviewing KPIs and
general pay structure (the Safety and Sustainability Committee) as
well as gender pay as part of the new broader gender agenda (the
Nomination Committee).
Remuneration principles and strategy
Our remuneration policy is underpinned by the Company’s strategy
and is result-oriented. We aim to develop and operate in a safe
and sustainable manner across high-grade mines in selected
geographies within the CIS and to generate free cash flow in order
to pay substantial and sustainable dividends. To achieve this, we
have developed a competitive advantage with our hub-based
system and refractory ore processing as well as applying a strict
capital and project management discipline throughout the Group.
Our Employment Policy is aligned with our strategy, as it calls for
responsible behaviour and personal accountability, as well as a
commitment to best practice in all matters and at all levels of the
organisation. Our general approach is to motivate and compensate
employees fairly and competitively for their contribution to the
business and to promote an open, positive and co-operative
attitude in the workplace.
In making remuneration decisions, the Committee considers
both the performance of the Company and the current environment
surrounding executive pay, where there is a clear expectation of
shareholder alignment and appropriate pay for performance.
Remuneration structure
Alignment with our corporate strategy is taken into consideration
in all components of our remuneration structure which is based
on a healthy balance between fixed and variable pay, use of the
KPIs tailored to key strategic objectives, as well as the strict vesting
conditions of our Performance Share Plan and substantial minimum
shareholding requirements.
The remuneration of Mr Nesis, Group CEO and the only Executive
Director on the Board, includes a simple and clearly defined KPI-
component, derived from top-level strategic goals, encompassing
operating and financial metrics that he can influence. In the same
way the KPI structure for all our senior managers and key employees
is tailored for individual responsibilities and performance. To reflect
the aim of zero fatalities at our operations, the bonus calculation
system for the Group CEO, some senior managers and mine
management has a major focus on health and safety KPIs,
adjusting bonus outcomes on all KPIs in the case of fatalities.
The same remuneration principles are applied to our senior
management team, which is composed of highly talented and
committed professionals who deliver outstanding operating and
financial performance under complex market conditions. We aim to
ensure the corporate cohesiveness of the team as well as to support
individual success and development.
The purpose and structure of the key elements of the Remuneration
Policy is set out below:
• The general structure of the executive Directors’ Remuneration
Policy successfully achieves our top corporate goals.
• The drivers of variable pay (KPIs) are stretching, well aligned with
the Company’s strategic objectives and cascade throughout the
organisation in a way that ensures our employees’ pay is aligned
to Polymetal’s performance and to the wider principles of the policy.
• The policy is consistent with UK market and governance practice
including, but not limited to, in the following aspects:
– Performance-related pay makes up a significant proportion of
the remuneration package (53% and 71% of total remuneration
for target and maximum performance scenarios, respectively),
with an appropriate balance between reward for short- and
long-term performance.
– Senior management interests are aligned with those of our
shareholders and the Company’s long-term objectives.
50% of the bonuses awarded each year to the Group CEO and
the senior management team are deferred into shares in the
Company through the Deferred Share Award plan (DSA) over a
period of three years and clawback and malus provisions apply
to the unvested awards.
– The Performance Share Plan (PSP) provides an additional
focus for key employees of the Group on delivering superior
Total Shareholder Return (TSR). Stringent PSP vesting
conditions, based on above median relative TSR and
underpinned by positive absolute shareholder returns,
are therefore fully aligned with shareholder- value creation.
– A vesting period of four years under the PSP, over which
clawback and malus conditions apply to the unvested awards,
with an additional post-vest holding period of one year ensures
that management focus on the long-term interests of the
Company and of its stakeholders.
– The Group CEO owns a shareholding equal to 8,780%, of his
base salary, far exceeding minimum shareholding requirements
of 500% of base salary.
The management KPIs include significant weighting towards
sustainability metrics, with the Group CEO’s component
purposefully focused on health and safety.
Key committee decisions
As communicated within last year’s Remuneration Report,
and in accordance with the revised Remuneration Policy, and to
bring it closer to the industry level, the salary of the Group CEO’s
(in Roubles) was increased by 25% in 2017.
The Remuneration Policy approved by shareholders last year included
a three-year planned increase for the base salary of our Group CEO
and senior management team base, after their remuneration had
fallen significantly below peer benchmark as their salaries are
denominated in Russian Roubles. The policy stated that the CEO’s
salary would be increased (in Roubles) by up to 10 percentage points
above the Russian domestic inflation rate in both 2018 and 2019,
subject to a Committee review based on market conditions,
exchange rates, the Company results or other considerations.
As per the policy, the Committee carefully reviewed whether
this increase remains appropriate for 2018. Given the favourable
economic environment in Russia throughout 2017, with a significant
slowdown of domestic inflation and strengthening of the RUB/US$
exchange rate (58.3 RUB/US$ average rate, 15% appreciation
compared with 2016), the Committee decided that there would
be no additional increase to the Group CEO’s salary in excess of
inflation rate. The approved salary increase will be 2.5%, which is
in line with Russian inflation and the average increase for the rest of
our workforce. The revised Group CEO base salary of US$434,662
per annum (using 60 RUB/US$ exchange rate) is still below the
peer group median (based on 2016 benchmarking performed by
PwC). In 2019, the Committee will again carefully review whether
a further above-inflation increase remains appropriate.
Non-executive Directors’ fees are reviewed on an annual basis.
Any increase in non-executive Directors’ fees will normally be in
line with UK inflation and market levels for similar roles in UK-listed
entities, except where a change in the scope of the role occurs.
Current fee levels are set out in the Annual Report on Remuneration
and have not been increased since 2011.
Corporate governance and approach to disclosure
As a FTSE 250 company listed on the London Stock Exchange,
we comply with the strictest of corporate governance requirements.
We remain committed to full adherence of all regulatory requirements
and best practice as reflected in our Remuneration Policy, decisions,
disclosure practices and requests for shareholder votes.
Moving forward
In 2018, our focus remains on careful oversight of the Remuneration
Policy implementation as well as key corporate governance matters,
including the smooth transition of new Committee members, gender
pay and adjusting to what is likely to be far-reaching new regulatory
and governance frameworks as they emerge.
The Committee composition has changed due to the Board
succession programme and we have welcomed Giacomo Baizini,
who brings wealth of experience of working in both natural
resources and large corporates in Russia and beyond. We are
looking forward to working with Ollie Oliveira, our new Committee
Director, with his strong background in finance and operational and
strategic roles primarily in the mining and resource sector. Existing
Committee member, Len Homeniuk, will not be offering himself for
re-election having served on the Board for approximately seven
years since the IPO. The new Directors are familiar with the current
remuneration practices in similar environments and as a Committee
we will facilitate the transfer of knowledge of remuneration matters
and of the Group practices to our new colleagues.
Finally, 2018 will be the first year of potential PSP vesting with
respect to 2014 grant, subject to vesting conditions being met.
On behalf of the Committee and of the Board, I continue to welcome
feedback from shareholders and look forward to receiving your
support at the AGM.
Christine Coignard
Chair, Remuneration Committee
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
95
REMUNERATION AT A GLANCE
The overview below summarises our Remuneration
Policy as described in the Chairman’s letter, the
alignment of remuneration framework with our
corporate strategy, the drivers of fixed and variable
pay and actual payment to the Group CEO for 2017.
OUR REMUNERATION POLICY
Target, % of base salary
150%
Performance
Share Plan
4-year vesting based on
relative TSR against
FTSE Gold Mines Index
+1-year holding period
50% subject to
3-year deferral
1/3 Shares
1/3 Shares
1/3 Shares
100%
Annual bonus
Cash
Shares
t
s
e
v
-
t
s
o
p
r
a
e
y
-
1
i
g
n
d
o
h
l
100%
Base salary
Year
0
+1
+2
+3
+4
+5
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED INFORMATION)
The graph opposite sets
out total remuneration for
the Group CEO for 2017.
Further details are provided
on page 106.
Group CEO
Base salary
US$426,991
Annual bonus
US$241,557
Pension
US$58,380
Total
US$726,928
44% of maximum bonus
55% of base salary
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
VARIABLE PAY OUTCOMES
Annual bonus payment
made in respect of
performance for the year
comprised 55% of base
salary, or US$241,557.
Further details on the
performance measures,
targets and actual outcomes
are provided on page 98.
KPIs (Measure)
Link to Strategy
Weights
Awarded in 2017
(% of base salary)
Achieving production budget, Koz
Total cash cost per ounce of gold
equivalent produced, US$
Completion of new projects
on time and within budget
Health and safety
Total achievement before penalty factor
Penalty factor for fatal/severe cases
2
1
1
2
25%
25%
25%
25%
100%
38%
23%
19%
0%
79%
-24%
(-30% of actual
bonus earned)
Up to 50% of
bonus earned for
non-safety related
KPIs (10% for each
fatality/two severe
cases) – up to
37.5% of total
bonus
Total
100%
55%
PSP VESTING AND SHARE PRICE PERFORMANCE
2018 will be the first year
of potential Performance
Share Plan (PSP) vesting,
subject to the share price
performance against
global peer group over
the performance period.
Further details on PSP
are provided on page 108.
Total shareholder return
(%)
160
140
120
100
80
60
40
20
Oct
2012
Dec
2012
Feb
2013
Apr
2013
Jun
2013
Aug
2013
Oct
2013
Dec
2013
Feb
2014
Apr
2014
Jun
2014
Aug
2014
Oct
2014
Dec
2014
Feb
2015
Apr
2015
Jun
2015
Aug
2015
Oct
2015
Dec
2015
Feb
2016
Apr
2016
Jun
2016
Aug
2016
Oct
2016
Dec
2016
Feb
2017
Apr
2017
Jun
2017
Aug
2017
Oct
2017
Dec
2017
Polymetal FTSE Gold Mines
CEO 2018 proposed base salary vs market benchmark1
(US$ thousands)
CEO pay vs TSR performance
1,400
1,225
1,050
875
700
525
350
175
435
800
700
600
500
400
300
200
100
5%
5%
30%30%
20%
20%
40%
30%
20%
10%
1 Benchmarking performed by PwC in July 2016
2015
2016
2017
Polymetal
Median – Upper Quartile Median – Lower Quartile
Total CEO pay, US$ thousands
Median – Upper Quartile
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
97
Opportunity
Performance metrics used
and period applicable
Element and purpose/
link to strategy
Operation
Long-Term Incentive Plan (LTIP)
REMUNERATION REPORT
DIRECTORS’ REMUNERATION POLICY
Summary table
The Committee received shareholder approval of the following Remuneration Policy at the AGM on 16 May 2017. The new policy covers a
period of three years from the date of approval – up to May 2020.
Element and purpose/
link to strategy
Operation
Executive Director – Group CEO
Base salary
To attract and
retain high-calibre
executives.
The Committee reviews base salary
on an annual basis, taking into
account general economic and
market conditions, underlying Group
performance, the level of increases
made across the Group as a whole,
the remuneration of executives in
similar positions in FTSE and global
mining peers, and individual
performance when setting base
salary for the following year.
Pension
To provide funding
for retirement.
The Group does not fund any
pension contributions or retirement
benefits, except contributions to the
mandatory pension fund of the
Russian Federation, as required
by Russian law.
The Group pays defined
contributions to the mandatory
pension fund. This permits retiring
employees to receive a defined
monthly pension for life from the
statutory pension fund.
In accordance with the policy, the
Group CEO’s salary increased (in
Roubles) by 25% from 1 April 2017,
and may increase by up to 10
percentage points above the
Russian domestic inflation rate in
2018 and 2019.
The Committee will carefully review
whether these increases remains
appropriate in 2018 and 2019 based
on the market conditions, exchange
rates and the Company’s results or
other relevant considerations, and
suspend if they are not justified.
The annual base salary for the
reporting year and the current year
is set out in the Annual Report on
Remuneration and page 108.
Does not exceed the mandatory
contribution made to the pension
fund of the Russian Federation.
Currently 10% of total pay.
Not applicable.
Not applicable.
Benefits
The Group does not provide any
benefits for its Group CEO.
Not applicable.
Not applicable.
Annual bonus
To focus on achieving
annual performance
goals, which are
based on the
Group’s KPIs
and strategy.
The annual bonus result is
determined by the Committee after
the year end, based on performance
against defined targets.
Annual bonuses are paid three
months after the end of the financial
year to which they relate.
50% of the annual bonus earned is
paid in cash and the remaining 50%
is compulsorily deferred into shares,
which are released annually to the
employee over the next three years
in equal instalments through the
Deferred Share Awards plan.
No clawback is applied to the
cash part of the annual bonus, as
this provision would contradict the
labour law of the Russian Federation.
Details of the DSA are set out
on the next page.
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ANNUAL REPORT & ACCOUNTS 2017
Maximum bonus opportunity –
125% of base salary.
Target bonus opportunity –
100% of base salary.
Threshold – nil annual bonus
for threshold performance.
The annual bonus is earned based
on the achievement of a mix of
financial and non-financial measures.
For 2017, performance metrics and
associated weightings for each were:
• production (25%);
• total cash costs (25%);
• completion of new projects on
time and within budget (25%); and
• health and safety (25%).
There is an additional penalty factor
for fatal/severe cases for up to 50%
of the annual bonus earned for
non-safety related KPIs.
The Committee has discretion to
vary the list and weighting
performance metrics over the life of
this Remuneration Policy. In addition,
the Committee has discretion to vary
performance metrics part-way
through a performance year if there
is a significant event which causes
the Committee to believe that the
original performance metrics
are no longer appropriate.
Deferred Share
Awards plan (DSA)
Deferral to encourage
retention and alignment
with shareholders.
Performance Share
Plan (PSP)
To provide long-term
alignment with
shareholders’ interests
by delivering sustainable
above-market
shareholder returns.
50% of the annual bonus earned is
paid in cash and the remaining 50%
is compulsorily deferred into shares,
which are released annually to the
employee over the next three years in
equal instalments.
Clawback and malus provisions apply
for the unvested portion of the DSA; the
Remuneration Committee may, at any
time up to and including vesting,
reduce the number of shares that vest,
should it consider that a material
misstatement, misconduct and/or a
failure of risk management occurs.
Dividend equivalents will be received on
vested shares, reflecting the value of
dividends which have been paid during
the period from the grant date to the
vesting date.
Under the PSP, annual rolling
conditional share awards are made
with a four-year vesting period and an
additional mandatory holding period
of one year following vesting.
Stretching performance targets reward
participants for delivering positive
absolute and superior relative TSR
performance against global peers over
the performance period.
Clawback and malus provisions apply
for the unvested portion of the PSP,
whereby the Remuneration Committee
may, at any time up to and including
vesting, reduce the number of shares
that vest, should it consider that a
material misstatement, misconduct,
and/or a failure of risk
management occur.
Retesting of the performance
conditions in future years is not
allowed under any circumstances.
First grant under the PSP was made
in April 2014; first normal vesting –
April 2018, subject to performance
conditions being met.
Opportunity
Not applicable.
Maximum grant permitted under
the plan rules is 200% of salary.
Default grant level is expected
to be 150% of base salary.
Threshold vesting is equivalent
to 20% of the award.
Dividend equivalents will be
received on vested shares,
reflecting the value of dividends,
which have been paid during the
period from the grant date to the
vesting date.
Performance metrics used
and period applicable
Entitlement to this deferred
component is subject to
continued employment over
the deferral period.
In normal circumstances, DSAs
will continue until the normal
time of vesting upon cessation
of employment due to death,
injury, ill-health, disability,
redundancy, retirement, or any
other circumstance which the
Committee determines (Good
Leaver Circumstances).
Alternatively, the Board may
determine that DSAs will vest
immediately. In both
circumstances there would be
no pro-rating of the DSAs for
the time from the award date
until cessation of employment
or for performance.
No performance conditions
apply to the DSA shares as
they have been subject to
fulfilment of annual KPIs.
Vesting is based on relative
TSR, measured against the
constituents of the FTSE Gold
Mines Index and also on the
Company’s absolute TSR.
Peers are ranked and the
Company’s position
determines vesting:
• 0% vests for below
median performance;
• 20% vests at median
performance;
• 100% vests at top decile
performance and above.
Vesting occurs on a linear line
basis between median and top
decile performance.
No award will vest if absolute
TSR is negative, regardless of
relative performance.
The Committee may substitute,
vary or waive the performance
targets if an event occurs
which causes the Committee
to consider that the target is no
longer appropriate.
The Committee has discretion
to vary the proportion of
awards that vest to ensure that
the outcomes are fair and
appropriate and reflect the
underlying financial
performance of the Group.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
99
REMUNERATION REPORT
Element and purpose/
link to strategy
Operation
Minimum shareholding
requirements
To strengthen alignment
between interests of
executive Directors and
those of shareholders.
The Group CEO is required to build
a minimum shareholding over a
four-year period.
Unvested shares under the PSP or DSA
are not taken into account when
calculating progress towards the
minimum shareholding requirements.
For the purposes of determining
whether the requirements have been
met, share price is measured at the
end of each financial year.
Post vesting and tax, all shares acquired
under PSP and DSA awards must be
retained until the shareholding
requirement is met.
Opportunity
500% of base salary for the
Group CEO.
Performance metrics used
and period applicable
Not applicable.
Non-executive Directors
Fees for non-executive
Directors
To attract and
retain high-calibre
non-executive Directors.
The fees of independent non-executive
Directors are set by reference to those
paid by other FTSE peer companies.
Fees are reviewed, but not
necessarily increased on
an annual basis.
Not applicable.
Any increase in non-executive
Directors’ fees will normally be in
line with UK inflation and market
levels for similar roles in UK-listed
companies, except where a
change in the scope of the role
occurs. Current fee levels are
set out in the Annual Report
on Remuneration.
Fees are set to reflect the
responsibilities and time spent by
non-executive Directors on the affairs
of the Company.
No fees are paid to non-independent,
non-executive Directors.
Non-executive Directors are not
eligible to receive benefits and do
not participate in incentive or
pension plans.
The following fees are paid in addition
to the non-executive Director base fee:
Committee Chairmanship fee;
Committee membership fee; and
Board, Committee and General
Shareholder Meeting attendance fee.
The Remuneration Committee
determines the framework and
broad policy for the remuneration
of the Chairman.
The remuneration of non-executive
Directors is a matter for the Chairman
of the Board and the executive
members of the Board, i.e.
the Group CEO.
Directors do not participate in
discussions relating to their own fees.
Notes to the policy table
Performance measures and targets
The Committee selected the performance conditions indicated in the policy table because they are central to the Company’s overall strategy,
and include the key metrics used under the annual bonus and LTIP by the Group CEO to oversee the operation of the business.
Performance targets for all incentive plans are reviewed annually and, where appropriate, are typically set at a level that is in line with the
Company’s forecasts.
The Long-Term Incentive Plan
Following shareholder approval at the AGM in June 2013, the Company’s LTIP (as amended) was put in place. The key terms of the LTIP
are described in the Remuneration Policy table above.
The Board believes that the LTIP ensures continued alignment of the executive team’s performance with shareholder interests and rewards
superior long-term performance and the creation of sustainable shareholder value. The Board also believes that the LTIP is in line with UK
best practice and follows fully the provisions of the UK Corporate Governance Code and other relevant guidelines, while also containing
features which are superior to common practice in the UK, such as a positive TSR underpinning for vesting of the PSP.
Remuneration policy for other employees
The Remuneration Policy for other members of the executive team and broader management team within the Group is consistent in both
structure and KPIs to that of the Group CEO. While the value of remuneration will vary throughout the Group, depending upon the individual’s
role, significance to the business and level of responsibility, the remuneration of all senior executives consists of a base salary, an annual
bonus and participation in the LTIP (the PSP and DSA).
Employees up to three levels below the Board (approximately 400 employees throughout the Group) participate in the PSP at the discretion
of the Remuneration Committee. The PSP policy default grant level is 150% of base salary for the Group CEO, 100% for Executive
Committee members and 50-100% for employees at the level below the Executive Committee.
Shareholding requirements are also set below the Board level. Operation of the DSA program for the most senior employees mirrors the
executive Director’s arrangement set out for in the policy table, where 50% of the annual bonus is deferred into shares and released annually
to the employees over a period of three years.
The Remuneration Policy for the wider group of employees is aimed at aligning pay with the achievement of targeted results for each
employee. The Company’s policy on fair pay provides for the payment of additional remuneration for employees living in difficult climatic
locations and the delivery of appropriate levels of pay for different levels of work. The bonus component of remuneration for mid-level
management and operational staff is measured based on the achievement of production targets, increasing output, the level of justified cost
savings and health and safety records. In terms of pension arrangements, the Company applies a consistent approach for the Group CEO
and other employees and adheres to the mandatory pension contributions required under applicable laws.
Salaries are considered for annual increases based on the Company’s performance results, inflation rates and the competitive level of
salaries versus the wider market.
Top-down approach to remuneration structure within the Group
Employee level
Group CEO
Executive Committee
Mine managing directors and other C-level executives
Senior managers and key personnel
Other employees
Number
of employees
Maximum
bonus percentage
of salary
Proportion of
bonus deferred
into shares (DSA)
1
7
15
650
11,350
125%
100%
100%
30-60%
10-30%
50%
50%
50%
NA
NA
Normal LTIP
award grant
150%1
100%
100%
50-100%2
NA
1 The maximum annual grant permitted under the scheme rules is 200% of base salary.
2 LTIP participants from the pool of senior managers and key personnel are recommended by the Company and approved by the Board. Being granted options in one year does not
necessarily mean they will be granted the following year.
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 101
REMUNERATION REPORT
Illustration of application of remuneration policy
The composition and structure of the remuneration package for the Group CEO under three performance scenarios (maximum performance,
target performance and minimum performance) is set out in the chart below.
This chart shows that the proportion of remuneration delivered through short-term and long-term incentive schemes is in line with our
Remuneration Policy and changes significantly across the three performance scenarios. As such, the package promotes the achievement of
both short-term and long-term performance targets and drives the alignment of the Group CEO’s interests with the interests of shareholders.
Application of remuneration policy
39%
Maximum
29%
Target
47%
Minimum
100%
32%
39%
Total: $1.7m
41%
12%
Total: $1.1m
Total: $0.5m
0.0
0.5
1.0
1.5
Fixed elements of remuneration
Single year variable
Multiple year variable
Note: Scenario values are translated at the budgeted exchange rate of 60 RUB/US$.
The scenarios are defined as follows:
Fixed elements
Base salary and pension
Base salary and pension
Base salary and pension
Minimum
Target
Maximum
Single year variable
Performance against quantitative
KPIs is below budget by more
than 10%. Non-achievement of
qualitative or non-financial KPIs.
0% pay-out.
Performance against quantitative
KPIs is at budgeted levels. Full
achievement of non-financial KPIs.
100% of base salary pay-out
(80% of maximum opportunity).
Includes DSA awards.
Performance against quantitative
KPIs is above budgeted levels.
Full achievement of non-financial
KPIs. 125% of base salary pay-out
(100% of maximum opportunity).
Includes DSA awards.
Multiple year variable
Share price performance
is below the median of FTSE
Gold Mines Index constituents.
No shares vest.
Scenario is based on 150% policy
awards. Share price performance
is at median of FTSE Gold Mines
Index constituents. Shares
equivalent to 30% of base salary
vest under the PSP (20% of total
shares available).
Share price performance is in
the top decile of FTSE Gold
Mines Index constituents. Shares
equivalent to 150% of base salary
vest under the PSP (100% of total
shares available).
No allowance has been made for share price appreciation or for the payment of dividend equivalents.
Approach to recruitment remuneration
The Committee’s approach to recruitment remuneration is to pay a competitive overall package, as appropriate, to attract and motivate
the right talent for the role. If an executive is promoted to the Board from within the Company, any pre-existing awards or benefits that were
made available to him or her prior to becoming a Director (and not in anticipation of an imminent promotion to the Board) will be retained
and allowed to vest or be provided under the original terms.
The following table sets out the various components, which would be considered for inclusion in the remuneration package for the
appointment of an executive Director. Any new Director’s remuneration package would include the same elements, be set at a level
consistent with the scope of the role (at a level not exceeding that of the Group CEO as set out in the Remuneration Policy table),
and be subject to the same constraints as those of existing Directors performing similar roles, as shown below.
Area
Base salary
and benefits
Pension
Annual bonus
Long-term incentives
Replacement awards
Other
Policy and operation
The base salary level will be set by taking into account the experience of the individual and the salaries paid
in comparable companies. Depending on the circumstances of any particular appointment, the Committee
may choose to set the base salary below market median and increase the amount paid over a period of time
to achieve alignment with market levels for the role (with reference to the experience and performance of the
individual), subject to the Company’s ability to pay. In line with the Remuneration Policy, as set out in the
Directors’ Remuneration Policy table, no benefits will be provided to recruited Directors.
Pension contributions will be limited to the mandatory contributions required by Cypriot/Russian/Kazakh/
Armenian or any other applicable law, as set out in the Directors’ Remuneration Policy table.
The executive Director will be eligible to participate in the annual bonus scheme as set out in the Directors’
Remuneration Policy table. The maximum annual opportunity is 125% of base salary. 50% of any bonus is
deferred into shares under the DSA, as set out in the Directors’ Remuneration Policy table.
The executive Director will be eligible to participate in the PSP part of LTIP at the Remuneration Committee’s
discretion and in line with the details set out in the Directors’ Remuneration Policy table. The maximum annual
grant permitted under the scheme rules is 200% of base salary and the normal grant level is up to 150% of
base salary. Performance measures would apply, as set out in the Directors’ Remuneration Policy table.
The Committee will seek to structure any replacement awards so that overall they are no more generous in
terms of quantum or timing than the awards to be forfeited as a consequence of the individual joining the
Company. In determining the quantum and structure of any replacement awards, the Committee will seek
to replicate the fair value and, as far as practicable, the timing, form and performance requirements of the
forfeited remuneration. The maximum value of replacement awards is capped at 50% of the individual’s
base salary, and at least 50% of any replacement award should be delivered in the Company’s shares.
Should relocation of a newly recruited executive Director be required, reasonable costs associated with this
relocation will be met by the Company. Such relocation support may include, but not be limited, to payment
of legal fees, removal costs, temporary accommodation/hotel costs, a contribution to stamp duty and
replacement of non-transferable household items. In addition, and in appropriate circumstances, the
Committee may grant additional support in relation to the payment of school fees and the provision of
tax advice. The Company will reimburse the executive Director for all reasonable expenses, which he/she
may incur while carrying out executive duties.
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 103
REMUNERATION REPORT
Policy on payment for loss of office
The Committee’s approach when considering payments in the event of termination is to take into account individual circumstances,
including the reason for termination, contractual obligations of both parties and applicable share plan and pension scheme rules
(including any relevant performance conditions).
Vitaly Nesis is an executive Director of Polymetal International plc and Group CEO of JSC Polymetal, a 100% subsidiary of the Group,
incorporated in Russia. Further details are set out in the current Directors’ service contracts section on page 105.
The table below summarises the key elements of the executive Director policy on payment for loss of office.
Area
Notice period
Compensation for
loss of office in
service contracts
Treatment of annual
bonus awards
Policy and operation
Polymetal International
6 months from Company
6 months from Director
JSC Polymetal
With immediate effect from Company
1 month from Director
No entitlement in respect of directorship of Polymetal International.
Up to three times average monthly salary in respect of directorship of JSC Polymetal in accordance with
provisions of the labour law of the Russian Federation.
Where an executive Director’s employment is terminated after the end of the performance year, but before
the payment of the annual bonus is made, the executive may be eligible for an annual bonus award for that
performance year subject to an assessment based on performance achieved over the period. No award will
be made in the event of gross misconduct. Where an executive Director’ s employment is terminated during
a performance year, a pro-rated annual bonus award for the period worked in that performance year may be
payable, subject to an assessment based on performance achieved over the period.
Treatment of unvested
Deferred Share Awards
under plan rules
In normal circumstances, DSAs will continue until the normal time of vesting upon cessation of employment
in Good Leaver Circumstances. Alternatively, the Board may determine that DSAs will vest immediately. In both
circumstances there would be no pro-rating of the DSAs for time from the award date until cessation of
employment or for performance.
Treatment of unvested
Performance Share
Plan awards under
plan rules
Any outstanding award will lapse at cessation of employment with the Group, unless the cessation is due to
Good Leaver Circumstances, in which case the award will usually vest as normal in accordance with the terms
of the award. Alternatively, the Committee may determine that the award will vest immediately.
The Committee will determine the proportion of the award that will vest, taking into account (where relevant) the
extent to which the performance conditions have been met or are likely to be met at the end of the performance
period, and any other factors the Committee may consider relevant.
Exercise of discretion
Any discretion available in determining the treatment of incentives upon termination of employment is intended
only to be relied upon to provide flexibility in unusual circumstances. The Committee’s determination will take
into account the particular circumstances of the Director’s departure and the recent performance of the Group.
Corporate event
In relation to PSP awards, in the event that the Company’s shares cease to trade on the London Stock
Exchange or any other recognised stock exchange (Delisting) or the Directors of the Company pass a
resolution to the effect that Delisting is imminent or where the Board determines that a ‘significant event’
has occurred, which may be a demerger, winding-up or compulsory acquisition of the Company, or any
other event as determined by the Board, at the discretion of the Board and, where applicable, with the
consent of the acquiring company, PSP awards will not vest but will be exchanged for new PSP awards.
In the event that the PSP awards are exchanged for new PSP awards:
• The award date of the new PSP award shall be deemed to be the same as the award date of the
original PSP award.
• The new PSP award will be in respect of shares in a company determined by the Board which may
include any acquiring company.
• The new PSP award must be equivalent to the PSP award and will vest at the same time and in the
same manner as the PSP award.
• Where relevant, either the vesting of the new PSP award must be subject to any performance conditions
which are, so far as possible, equivalent to any conditions applying to the PSP award, or no performance
conditions will apply but the value of shares comprised in the new PSP award shall be the value of the
number of shares which would have vested under the PSP award if they had not been exchanged for
new PSP awards.
DSAs shall vest immediately and shall not be pro-rated for time or performance if any of the events referred to
above occur.
Current directors’ service contracts
Group CEO
The table below highlights key elements of the service contract of the Group CEO with JSC Polymetal, the Russian holding company
of the Group where he holds the CEO position:
Date of contract
Expiry of term
1 September 2013
31 August 20181
Payment in lieu of notice
None
Pension
None, except for defined contributions to the mandatory pension fund of the Russian Federation
1 Employment contract expected to be renewed on the same terms for a further period of five years.
Following the expiry of the previous five-year employment contract, on 23 August 2013, JSC Polymetal, a 100% indirect subsidiary of the
Company incorporated in Russia, entered into an employment contract with Mr Nesis as its Group Chief Executive Officer (Group CEO).
The contract became effective on 1 September 2013. The contract was entered into for a period of five years and expires on 31 August 2018.
Under the terms of the contract, the Group CEO undertakes to perform general management of JSC Polymetal and arrange for its
commercial, economic, social and other activities with a view to providing for JSC Polymetal’s further development. The employment
contract does not contain any specific grounds for early termination. The contract can be terminated at any time on one month’s notice
by Mr Nesis and with immediate effect by JSC Polymetal in accordance with Russian labour and civil law. This could result in compensation
of three average monthly salaries.
Mr Nesis entered into an appointment letter (as amended) with the Company in relation to his appointment as an Executive Director.
This appointment took effect on 29 September 2011 and was conditional on admission of shares to trading on the London Stock Exchange;
Mr Nesis is subject to annual re-election. Mr Nesis does not receive any fees in respect of his appointment as a Director of Polymetal
International plc but is entitled to reimbursement of his reasonable expenses incurred in relation to carrying out his duties as a Director.
The appointment of Mr Nesis as a Director may be terminated at any time in accordance with the Articles of Association. Mr Nesis can
terminate his appointment as a Director on six months’ notice. He is not entitled to receive any compensation in respect of his role as
Director on termination of this appointment.
The full terms and conditions of appointment are available for inspection at the Company’s registered office in Jersey and its office in Cyprus.
Non-executive Directors
Non-executive Directors do not have service contracts. Rather, the terms of their appointment are set out in letters of appointment.
The appointment of each of the non-executive Directors took effect from admission until the next AGM of the Company, subject to annual
re-election. The appointment of any non-executive Director may be terminated at any time in accordance with the Articles of Association.
The appointment of each non-executive Director may be terminated by either party on one month’s notice. A non-executive Director is not
entitled to receive any compensation on termination of his or her appointment. Each non-executive Director is subject to confidentiality
restrictions without limitation in time.
The full terms and conditions of appointment of all of the Directors are available for inspection at the Company’s registered office in
Jersey and its office in Cyprus.
Dates of contract or appointment for non-executive Directors are set out in the table below:
Director
Bobby Godsell
Konstantin Yanakov
Jean-Pascal Duvieusart
Marina Grönberg
Jonathan Best
Russell Skirrow
Leonard Homeniuk
Christine Coignard
Tracey Kerr2
Giacomo Baizini2
Date of contract or appointment
Notice period
29 September 2011
29 September 2011
29 September 2011
29 September 2011
29 September 2011
29 September 2011
29 September 2011
1 July 2014
1 January 2018
1 January 2018
1 month
1 month
1 month
1 month
1 month
1 month
1 month
1 month
1 month
1 month
2 Ms Kerr and Mr Baizini were appointed by the Board with effect from 1 January 2018 as independent non-executive Directors. They are subject to election at the 2018 AGM.
104
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 105
REMUNERATION REPORT
Statement of consideration of shareholders’ views
The Company received shareholder approval of its Remuneration Policy at the AGM on 16 May 2017 to cover a period of three years
(99.10% of votes in favour). The policy applies from the date of approval. The Directors’ annual Remuneration Report was put to an advisory
shareholder vote at the 2017 AGM of the Company and received 99.63% vote. The Committee regularly consults with the Company’s major
shareholders, and sought their feedback on the revised Remuneration Policy.
Statement of consideration of employment conditions elsewhere in the group
In determining salary increases for the Group CEO, the Committee takes into account a range of factors, including overall base salary
increases awarded to the wider employee population during the year.
Polymetal is firmly committed to acknowledging and rewarding employees’ hard work and achievements. To help us attract and retain
the best candidates, we offer competitive remuneration package and benefits which exceed regional averages in our areas of operation.
We also aim to provide a pleasant and effective working environment as well as training or further education and other opportunities to our
employees. In 2017, 10% average compensation increase for the general workforce was made; in accordance with the new payment policy
approved by the shareholders and to bring the salary of the Group CEO’s closer to the industry level, a 25% increase was made to the Group
CEO’s base salary (in Roubles). Hence, the average compensation increase for the general workforce in 2011-2017 has been equivalent to
16% per annum in Rouble terms, compared with an average base salary increase of 10% per annum in Rouble terms for the Group CEO.
For 2018, in line with Russian inflation, a 2.5% increase for all employees was approved by the Committee. The Committee also carefully
reviewed whether an increase to the Group CEO in excess of 2.5% was appropriate in accordance with the policy, however, considering the
favourable economic environment in Russia and strengthening of the Russian Rouble throughout 2017, no additional increase to the Group
CEO was recommended.
ANNUAL REPORT ON REMUNERATION
Application of remuneration policy in 2017
Single total figure of remuneration (audited information) – US Dollars
No discretion has been used in respect of non-executive and executive Directors’ remuneration throughout the reporting period. Our Group
CEO is the only executive member of the Board. The table below sets out 2017 remuneration for the Group CEO.
The Group CEO’s remuneration is denominated in Russian Roubles and converted to US Dollars for presentation purposes. The approach to
exchange rates and Russian Rouble remuneration equivalent is set out in footnote 1 to this table.
Base
salary
2017
426,991
2016
303,289
Taxable
benefits
2017
–
Annual
bonus
Performance
Share Plan
(PSP)3
2016
–
20172
241,557
2016
152,329
2017
–
2016
–
Pension
2017
58,380
Total
2016
40,792
2017
726,928
2016
496,410
1 The amounts are translated at the average rates of the Russian Rouble to the US Dollar for 2016 and 2017, respectively.
2 50% of the bonus received in 2017 will be deferred into 10,261 shares on 15 March 2018 at US$11.8 (RUB 687) per share (using average price for the 90-day period ending
31 December 2017). In line with policy disclosed on page 98, deferred shares will be released in equal tranches over a period of three years in March 2019, March 2020
and March 2021 and are not subject to further performance conditions.
3 No PSP awards vested or exercised in the year.
Details of total fees paid to non-executive Directors and the Chairman during 2017 and 2016 are set out in the table below:
Bobby Godsell
Jonathan Best
Russell Skirrow
Leonard Homeniuk
Christine Coignard
Konstantin Yanakov
Marina Grönberg
Jean-Pascal Duvieusart
Total non-executive fees
Note: The amounts for 2017 and 2016 are translated at average GBP/US$ exchange rates.
Non-executive Directors do not receive performance-related pay.
106
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Total fees (US$)
2017
2016
374,203
222,057
196,370
180,648
223,271
–
–
–
388,666
226,709
199,827
191,650
232,515
–
–
–
1,196,549
1,239,367
Single total figure of remuneration – Summary
The tables below set out the total 2017 remuneration for the Group CEO. In accordance with the revised Remuneration Policy and to
bring the salary of the Group CEO’s (in Roubles) closer to the industry level, 25% increase was made in 2017 to his base salary. As a
result of the strong performance of the Company and achieving the set KPIs (other than health and safety performance), the Group
CEO received a bonus of 44% of maximum opportunity for the year (which constitutes 55% of his base salary or US$241,557), with 50%
of bonus deferred into shares vesting over a period of next three years under the terms of the DSA. 19,638 total shares vested in 2017
under the DSA. In addition, under the PSP, a conditional award of 47,249 ordinary shares with no par value was made to Mr Nesis in 2017,
making the total number of options outstanding under the PSP 236,087.
Single total figure of remuneration – Additional information (Audited)
Annual bonus targets and outcomes
The targets for annual bonus measures and performance against these targets are set out below:
Measures
Weight
Threshold
Achieving production budget, Koz
Total cash cost per ounce of gold
equivalent produced, US$/oz
Completion of new projects
on time and within budget
Health and safety
25%
25%
25%
25%
Total achievement before penalty factor
100%
Penalty factor for fatal/severe cases
Final achievement for the year
Up to 50% of
bonus earned
for non-safety
related KPIs
(10% for each
fatality/two
severe cases) –
up to 37.5% of
total bonus
Target
1,362
653
Maximum
1,430
620
2017
Outcome
1,434
658
1,225
718
1 point
10 points
10 points
7.5 points
Nil fatalities;
reduction of
LTIFR by 10%
y-o-y
Nil fatalities;
reduction of
LTIFR by 10%
y-o-y
NA
NA
NA
NA
2 fatalities
and
2 severe
cases
2 fatalities
and
2 severe
cases
Achievement
38%
23%
19%
0%
79%
-24%
(-30% of
actual
bonus
earned)
55%
Penalty factor for fatal/severe cases is up to 50% of the annual bonus earned for non-safety related KPIs. This resulted in the Group CEO
receiving a bonus of 44% of maximum opportunity for the year (which constitutes 55% of his base salary or US$241,557).
Deferred Share Awards Plan
In accordance with the DSA, part of the award of shares under the DSA, which were granted in March 2014, March 2015 and March 2016,
vested on 15 March 2017 and were transferred to the Group CEO. In addition, further to the bonus approval for the year ended 31 December
2017, the Group CEO will receive on 15 March 2018 a deferred bonus award in shares under the terms of the DSA as per the schedule
below. Share awards will vest annually over the next three years in equal instalments (in March 2019, 2020 and 2021). Under the terms
of the DSA, dividend equivalents will be received on vested shares reflecting the value of the dividends, which have been paid during the
period from the grant date to the vesting date. Dividend equivalents will also be paid as shares.
Name
Vitaly Nesis
Position
Director
Year of grant
Number
of deferred DSA
shares granted
2014
2015
2016
2017
Total
30,081
22,178
6,656
7,909
Number
of DSA
shares
vested in
2017
10,027
7,393
2,219
–
Additional
share awards
for dividend
equivalents
Total number
of shares
vested under
DSA grant
Outstanding
shares
under DSA grant
1,983
2,064
202
69
32,064
15,937
2,290
–
–
8,305
4,568
7,978
66,824
19,639
4,318
50,291
20,851
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 107
REMUNERATION REPORT
Performance Share Plan
Under the PSP, a conditional award of 47,249 ordinary shares with no par value was made to Mr Nesis in 2017, making the total number
of options outstanding under the PSP 236,087. It is exercisable following respective four-year vesting periods, subject to performance
measures determined by Polymetal. For this award, vesting is based on relative TSR, measured against the constituents of the FTSE Gold
Mines Index and also on the Company’s absolute TSR. Peers are ranked and the Company’s position determines vesting (0% vests for
below median performance; 20% vests at median performance; 100% vests at top decile performance and above). No award will vest if
absolute TSR is negative, regardless of relative performance.
Name
Vitaly Nesis
Position
Director
Year of
grant/Year
of vesting
2014/2018
2015/2019
2016/2020
2017/2021
Total number of options outstanding under the PSP
Other scheme interests awarded during the financial year
No other share awards were made to the Group CEO in 2017.
Number of
PSP share
awards
granted
74,165
66,166
48,507
47,249
236,087
Number of
PSP shares
vested
in 2017
Total number
of PSP shares
vested
Outstanding
shares under
PSP grant
–
–
–
–
–
–
–
–
74,165
66,166
48,507
47,249
236,087
Percentage change in Group CEO’s remuneration
Excluding the value of long-term incentives, the percentage change in total remuneration for the Group CEO was a 46% increase from
US$496,411 in 2016 to US$726,928 in 2017 following 25% base salary increase effective from 1 April 2017. It was also positively affected by
15% appreciation of Russian Rouble against US Dollar. The average percentage change in total remuneration for all employees in US Dollar
terms in the same year was a 33% increase mainly driven by Rouble appreciation and general increase in workforce.
To ensure the comparability of this figure, and to minimise distortions, the all-employee remuneration figure is based on full-time
permanent employees.
Relative importance of spend on pay
The chart below shows how employee remuneration costs compare with profit before tax and distributions made to shareholders in
2017 and 2016.
Implementation of remuneration policy in 2018
In 2018, the Committee intends to implement the Remuneration Policy for executive and non-executive Directors as follows:
Group CEO
Base salary
In accordance with the policy and following careful consideration by the Committee, the Group CEO’s salary will be increased (in Roubles)
by a total of 2.5% in 2018 in line with the rest of the workforce. Base salary for the Group CEO for 2017 and 2018 is set out below:
Total pension entitlements
Save for the Group’s defined contributions to the mandatory pension fund of the Russian Federation during the financial year ended
31 December 2017, no amounts were set aside or accrued by the Group to provide pension, retirement or other benefits to the
Directors and senior management.
Group CEO
2018 salary1
2017 salary1
% change
RUB 26,079,690 RUB 25,443,600
US$434,662
US$424,060
2.5%
2.5%
Loss of office payments or payments to past directors
No loss of office payments or payments to past Directors were made in the year under review.
Directors’ shareholdings
The Group CEO is required to retain a shareholding equal to five times his base salary, i.e 182,275 shares.
For the purposes of determining whether the requirements have been met, the share price is measured at the end of each financial year.
Shares are valued for these purposes at the year-end price of US$12.42 per share at 31 December 2017 translated at the closing exchange
rate of the US Dollar to the Russian Rouble as at 31 December 2017.
Shares that count towards shareholding requirements include unrestricted shares. The table below sets out the number of shares held,
or potentially held, by Directors. For details of outstanding conditional share awards held by the Group CEO at 31 December 2017,
refer to page 105.
Director
Vitaly Nesis
Leonard Homeniuk1
Bobby Godsell
Marina Grönberg2
Shares held
Options held
Shareholding
requirement
(% of salary)
Owned
outright
Subject to
performance
conditions
Vested but
unexercised
Exercised
in year
500%
3,200,709
–
–
–
64,000
2,000
23,400
–
–
–
–
–
–
–
–
–
–
–
–
Current
shareholding
(% salary)
8,780%
–
–
–
Guideline
met
yes
NA
NA
NA
1 Shares are held by a Person Closely Associated with Mr Homeniuk.
2 Shares are held by Ms Grönberg and a Person Closely Associated with her.
Performance graph
The graph on page 97 illustrates the Company’s TSR performance relative to the constituents of the FTSE 250 Index (excluding investment
companies), of which the Company is a constituent, from the date of the Company’s listing on the London Stock Exchange in October 2011.
To provide context to the Company’s performance in its specific sector of operation, we also provide an illustration of the Company’s TSR
relative to the constituents of the FTSE Gold Mines Index.
Group CEO’s pay in the last five years
US$
Group CEO total remuneration
Annual bonus – % of maximum
PSP award – % of maximum
108
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
2017
2016
2015
2014
2013
726,928
496,411
511,665
907,790
1,081,572
44%
–
40%
–
33%
–
90%
–
88%
–
1 Base salary for 2018 is translated at the budgeted exchange rate of Rouble to US Dollar for 2018.
The Committee also carefully reviewed whether an increase in excess of 2.5% for the Group CEO was appropriate as per the policy.
However, considering the favourable economic environment in Russia and reasonably stable RUB/US$ exchange rate throughout 2017
(58.3 RUB/US$ average rate, 15% decrease compared to 2016), no additional increase was recommended.
The Committee will review whether a further above-inflation increase remains appropriate in 2019 based on the market conditions, exchange
rates and the Company’s results or other relevant considerations.
Pension and benefits
No pension or benefits plans are in place for 2018, except for the defined pension contributions to the mandatory pension fund of the
Russian Federation.
Annual bonus
The prospective targets for annual bonus measures are considered commercially sensitive by the Board, particularly in the gold mining
industry, because of the sensitivity of information that their disclosure may provide to the Company’s competitors, given that these are largely
based outside the UK and hence are not subject to the same reporting requirements as the Company. Targets and outcomes will be
disclosed retrospectively at the end of the performance year.
Relative importance of employee pay
(US$m)
116
Regular dividends
+4%
-1%
189
382
376
+33%
363
273
65
Special
dividends
116
Regular
dividends
Total employee
pay
Return to
shareholders
Underlying profit
before tax
2016
2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 109
REMUNERATION REPORT
Long-term Incentive Plan (Deferred Share Awards Plan and Performance Share Plan)
Deferred Share Awards Plan
The Committee intends to defer annual bonus awards earned for the 2018 performance period in line with policy.
Consideration by the Directors of matters relating to Directors’ remuneration
In 2017, the Remuneration Committee had four meetings. Further business conducted by the Committee was approved by written
resolutions on two occasions. The following key areas were covered:
Performance Share Plan
The Committee intends to make an award under the PSP to the Group CEO in 2018, in line with the policy disclosed on page 97. Vesting is
based on relative TSR measured against the constituents of the FTSE Gold Mines Index and on the Company’s absolute TSR. Peers are
ranked and the Company’s position determines vesting:
Below threshold
Threshold
Maximum
TSR vs. FTSE Gold Miners
Below median performance
Median performance
Upper decile performance
Pay-out
0%
20%
100%
Straight-line vesting will occur between median and upper decile performance. No award will vest for performance below median, or if the
Company’s absolute TSR performance is negative, regardless of relative performance.
Non-executive Directors
There was no change to the non-executive Directors’ fees in 2017. Fee rates for 2017 and 2018 are set out below:
Role
Non-executive Chairman
Senior Independent Director
Independent non-executive Director basic fee
Additional fees
Audit and Risk Committee Chair
Chair of other Committees
Committee membership fee (not payable to the Committee Chair)
2018 fees US$
2017 fees US$
337,125
337,125
No additional fee
No additional fee
134,850
134,850
40,455
20,228
13,485
40,455
20,228
13,485
Board and Committee meeting attendance fee
4,046 per meeting 4,046 per meeting
Note: Non-executive Director fees are denominated in British Pounds Sterling and for presentation purposes the figures are translated to US Dollars at the exchange rate of British Pound
to the US Dollar as at 31 December 2017.
Remuneration Committee
The Remuneration Committee comprises four independent non-executive Directors who have no personal financial interest, other than as a
shareholder (where applicable), in the matters to be decided. Mr Homeniuk will not be offering himself for re-election at the 2018 AGM of the
Company. Mr Oliveira will become a member of the Committee subject to him being elected as a director of the Company at the 2018 AGM.
The membership of the Remuneration Committee is shown in the table below.
Name
Christine Coignard
Leonard Homeniuk
Jonathan Best
Giacomo Baizini
Role
Chair
Member
Member
Member
The principal functions of the Remuneration Committee under its terms of reference are:
• to make recommendations to the Board on the Group’s policy on the remuneration of executive management;
• to determine, within agreed terms of reference, the remuneration of the Chairman and specific remuneration packages for each of
the executive Director, the Company Secretary and members of senior management, including pension rights and any
compensation payments;
• to formulate suitable performance criteria for the performance-based pay of executive management;
• to review and oversee all aspects of any executive share scheme operated by or to be established by the Company; and
• to oversee and advise the Board on any major changes in employee benefit structures throughout the Company or the Group.
The full terms of reference of the Remuneration Committee can be found in the Corporate Governance section on the Company’s website:
www.polymetalinternational.com.
In 2017, the Financial Reporting Council (the FRC) announced plans for a comprehensive review of the UK Corporate Governance
Code, which is expected to include changes relating to remuneration matters. The Committee will closely monitor the development
and implement any changes if required.
• KPI structure review with particular focus on the choice and applicability of a sustainability KPI;
• review of KPIs for 2017;
• approval of annual bonus and share deferral under the DSA;
• approval of PSP grant (including target levels and results of the previous grants);
• gender equality in pay;
• comprehensive Committee-effectiveness review, including feedback from the senior management;
• terms of reference review;
• annual reimbursement policy review;
• annual Remuneration Report review;
• review peers’ disclosure of targets in remuneration reports;
• target KPI disclosure;
• review of regulatory changes and development of the Directors’ remuneration reporting; and
• monitoring of market practice and changes in investors’ expectations.
The Board considers that the composition and work of the Remuneration Committee complies with the requirements of the UK Code.
In 2017, the Committee performed its comprehensive effectiveness review. It was based on an internally developed questionnaire, taking into
account on the one hand external factors including our Group regulatory environment, applicable governance as well as internationally
acknowledged best practice, and on the other hand internal factors relating to Group matters including the Remuneration Policy and its
application together with Committee’s terms of reference, yearly agenda, ways of working and output. Both Remuneration Committee
directors and senior management involved in remuneration matters took part in the exercise.
The review was a good opportunity to reflect on the Committee’s work and have an open discussion about areas for improvement.
The outcome was positive, particularly in relation to shareholder votes and good working relationships with the Board and the Group CEO.
The Committee’s remits, ways of working and priorities were clarified.
Statement of voting at AGM
At the AGM held on 16 May 2017, votes for the Remuneration report and Remuneration policy were as follows:
Remuneration Report
Remuneration Policy
Votes for
Votes against
296,298,722 (99.63%)
1,101,272 (0.37%)
294,388,477 (99.10%)
2,675,792 (0.90%)
Withheld
0
335,724
Advisors
PricewaterhouseCoopers LLP (PwC) provided Polymetal with information and support in relation to the general remuneration matters and
implementation of the Company’s remuneration policy. PwC is a member of the Remuneration Consultants’ Group (RCG) and a signatory
of the RCG Voluntary Code of Practice, and incorporates the principles of the Voluntary Code of Practice into its engagement. No other
services were provided by PwC during 2017 other than external assurance services for the Company’s Sustainability report and tax
advisory. Fees paid to PwC in relation to remuneration services provided to the Committee in 2017 totalled US$16,654 (2016: US$13,875),
with fees quoted in advance and based on the level of complexity of the work undertaken.
PwC was selected in 2013, after submitting a proposal to management, to carry out benchmarking as part of a competitive process,
the results of which were presented to the Remuneration Committee for approval.
During its work in 2017, the Committee was aided by the Group CEO, and senior finance and human resources executives of the Company.
Approval
This report was approved by the Board of Directors and signed on its behalf by
Christine Coignard
Chair, Remuneration Committee
110
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 111
DIRECTORS’ REPORT
The Directors submit the Annual Report of
Polymetal International plc together with the
audited financial statements of Polymetal
International plc for the year ended
31 December 2017.
Corporate governance
Refer to pages 77 to 87 for a description of the Group’s corporate
governance structure and policies.
Going concern
In assessing its going concern status, the Group has taken account
of its financial position, anticipated future trading performance,
its borrowings and other available credit facilities, and its forecast
compliance with covenants on those borrowings and its capital
expenditure commitments and plans. As at 31 December 2017,
the Group held US$36 million of cash and had net debt of
US$1,420 million. At 31 December 2017, the Group has undrawn
facilities of US$1,361 million, of which US$1,266 million were
considered committed.
The Board is satisfied that the Group’s forecasts and projections,
having taken account of reasonably possible changes in trading
performance, show that the Group has adequate resources to
continue in operational existence for at least the next 12 months
from the date of this report and that it is appropriate to adopt the
going concern basis in preparing the consolidated financial
statements for the year ended 31 December 2017.
Longer-term viability statement
Based on key drivers and measures of success used within the
business, the Board assessed the prospects of the Group, taking
account of potential impact of the principal risks to the Group’s
business model and ability to deliver its strategy, including solvency
and liquidity risks during the reasonably reliable lookout period.
Lookout period
The period over which the Board considers it possible to form a
reasonable expectation as to the Group’s longer-term viability, based
on the stress testing and scenario planning process employed by
the Group, is the three-year period to December 2020. This is within
the Group’s existing medium-term forecasting performed on the
annual basis and covering strategic and investment medium-term
planning. The Board is confident that routine operational risks are
being effectively monitored and managed within the three-year
lookout period and corporate scenario planning is focusing primarily
on plausible changing external factors with a reasonable degree of
confidence whilst still providing an appropriate longer-term outlook.
Principal risks
The Board has continued to place great emphasis on risk
management in 2017 taking into account material external
economic and geopolitical challenges and considering the
Group’s responsiveness to changes within its business environment.
The detailed assessment of principal risks and uncertainties
facing the Group is set out on pages 70 to 74 of this Annual Report.
The corporate planning process is underpinned by life-of mine
plans and stress scenario testing. The stress tests are designed
to evaluate the resilience of the Group to the potential impact of
principal risks and the availability and effectiveness of the mitigating
actions that could be taken to avoid or reduce the impact or
occurrence of the underlying risks. In considering the likely
effectiveness of such actions, the conclusions of the Board’s
regular monitoring and review of risk and internal control systems,
as discussed on pages 88 to 93, were taken into account.
Key assumptions
The key assumptions underpinning the Board’s assessment include
gold and silver prices, production volumes, foreign exchange rates
and the ability to roll forward borrowing facilities as they fall due in
the ordinary course of business. The key assumptions made are
consistent with those used for business planning purposes, and also
for the assessment of impairment indicators and the recoverability
of ore stockpiles and heap leach work in progress.
In making forecasts, full consideration has also been given to
all other principal risks to the business. These risks have been
considered in our stress testing where appropriate, or are
considered to be either immaterial or too remote to affect
our viability over a three-year period.
The risks are considered individually and in aggregate,
where appropriate.
Liquidity and solvency
The sources of funding available to the Group are set out in
Note 24 to the consolidated financial statements. Our base case
projections demonstrate that the Group should be able to operate
within the currently available debt facilities and comply with all
related covenants during the lookout period. The committed
undrawn facilities of US$1,266 million noted above have an average
period of maturity of four years.
Our stress testing focuses in particular on significant adverse changes
in market prices of gold and silver or foreign exchange rates and
demonstrates that under reasonably possible downside gold and
silver price and exchange rate assumptions, the Group will continue
maintaining liquidity and covenant compliance.
Expectations
The Board confirms that taking into account the Group’s current
position and based upon the robust assessment of the principal
risks facing the Group and stress testing-based assessment of the
Group’s prospects, the Board has a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as
they fall due over the period to 31 December 2020.
Financial and business reporting
The Board believes that the disclosures set out in the Strategic
Report on pages 1 to 76 of this Annual Report provide the
information necessary for shareholders to assess the
Company’s performance, business model and strategy.
Directors
The Directors, their status and Board Committee memberships
are set out on pages 78 to 79 and 84 of the Report.
Appointment and replacement of directors
The Board may appoint a person who is willing to act as a Director,
either to fill a vacancy or as an additional Director and, in either case,
whether or not for a fixed term. Irrespective of the terms of his or her
appointment, a Director so appointed shall hold office only until the
next AGM. If not re-appointed at such AGM, he or she shall vacate
office at its conclusion.
The Company may, by ordinary resolution, remove any Director from
office (notwithstanding any provision of the Company’s Articles or
of any agreement between the Company and such Director, but
without prejudice to any claim that he or she may have for damages
for breach of any such agreement). No special notice needs to
be given of any resolution to remove a Director and no Director
proposed to be removed has any special right to protest against his
or her removal. The Company may, by ordinary resolution, appoint
another person in place of a Director removed from office.
Directors’ interests
Information on Directors’ interests in shares of the Company is
set out in the Remuneration Report on page 108.
Directors’ indemnities
To the extent permitted by the Companies (Jersey) Law 1991,
the Company has indemnified every Director and other officer
of the Company (other than any person (whether an officer or not)
engaged by the Company as auditor) out of the assets of the
Company against any liability incurred by him or her for negligence,
default, breach of duty, breach of trust or otherwise in relation to the
affairs of the Company. This provision does not affect any indemnity
to which a Director or officer is otherwise entitled.
Political donations
The Company may not make a political donation to a political
party or other political organisation, or to an independent election
candidate, or incur any political expenditure, unless such donation
or expenditure is authorised by an ordinary resolution of
shareholders passed before the donation is made or the expenditure
incurred. No such donations were made in 2017 (2016: none).
Capital structure
The structure of the Company’s share capital is detailed in Note 30
to the financial statements. There are no specific restrictions on the
size of a holding or on the transfer of shares, which are both
regulated by the Articles of the Company and applicable legislation.
The Directors are not aware of any agreements between holders of
the Company’s shares that may result in restrictions on the transfer
of shares or on voting rights.
The Articles of the Company can be altered by a special resolution
of the Company. A resolution is a special resolution when it is
passed by three-quarters of the members who (being entitled to
do so) vote in person, or by proxy, at a General Meeting of the
Company. Pursuant to the Company’s Articles, the Directors have
the power to allot Equity Securities (as defined in the Articles).
There are a number of agreements that take effect, alter or terminate
upon a change of control of the Company, such as commercial
contracts, bank loan agreements and employees’ share plans.
None of these is considered to be significant in terms of their likely
impact on the business of the Group as a whole. Furthermore, the
Directors are not aware of any agreements between the Company
and its Directors or employees that provide for compensation for loss
of office or employment that occurs because of a takeover bid.
Substantial shareholdings in the Company are disclosed on page 194.
Details of employee option schemes are set out in the Remuneration
Report on page 99. There were no acquisitions of the Company’s
own shares in 2017.
As at 31 December 2017, the Group and its subsidiaries held
no treasury shares (31 December 2016: no shares).
As at 31 December 2017, the Company had shareholders’
authority to purchase up to 43,011,266 of its own ordinary shares.
At the AGM of the Company held in 2017, the power to allot Equity
Securities was renewed up to an aggregate number of 143,370,887
ordinary shares, provided that the Directors’ power in respect of
such an amount may only be used in connection with a pre-emptive
issue (as defined in the Articles).
The Directors are further empowered pursuant to Article 12.4 of
the Company’s Articles to allot Equity Securities for cash as if
Article 13 of the Articles (Pre-emptive rights) did not apply and
for the purposes of paragraph (b) of Article 12.4 of the Articles,
the Non Pre-emptive Shares (as defined in the Articles) are an
aggregate number of up to 43,011,266 ordinary shares.
The authorities above will, unless previously revoked or varied,
expire at the conclusion of the Company’s next AGM (or, if earlier,
at the close of business on the date which is 15 months after the
date of the resolution which granted them, being 16 August 2018).
112
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 113
DIRECTORS’ REPORT
DIRECTORS’ RESPONSIBILITY STATEMENT
DIRECTORS’ RESPONSIBILITY STATEMENT
Pursuant to Article 57 of the Companies (Jersey) Law 1991,
the Company is authorised to make market purchases of
ordinary shares of the Company, provided that:
• the maximum number of ordinary shares to be purchased is
43,011,266 ordinary shares;
• the minimum price (excluding expenses) which may be paid
for each ordinary share is 1 penny;
• the maximum price (excluding expenses) which may be paid
for each ordinary share is the higher of:
a. an amount equal to 105% of the average of the middle market
quotations of an ordinary share in the Company as derived
from the London Stock Exchange Daily Official List for the five
business days immediately preceding the day on which the
ordinary share is contracted to be purchased; and
b. an amount equal to the higher of the price of the last
independent trade of an ordinary share and the highest current
independent bid for an ordinary share as derived from the
London Stock Exchange Trading System;
• pursuant to Article 58A of the Companies (Jersey) Law 1991,
the Company may hold as treasury shares any ordinary shares
purchased pursuant to the authority conferred in this resolution.
This authority will expire at the conclusion of the Company’s next
AGM or 18 months from the date of the passing of this resolution,
being 16 November 2018 (whichever is earlier).
Approval of share issues, consideration for which does not
exceed US$25 million, is delegated to any Director holding
any executive office.
As of 9 March 2018, the total issued share capital of the Company
comprises 430,115,480 ordinary shares of no par value, each
carrying one vote. During the year, 1,853,142 ordinary shares in the
Company were issued as follows: 893,575 shares for additional 25%
stake in Tarutin deposit; 815,348 shares as payment for a deferred
consideration for the acquisition of the Primorskoye property,
144,219 shares in accordance with the Long-Term Incentive Plan.
Dividends
The Group’s profit for the year ended 31 December 2017
attributable to equity holders of the Company was US$354 million
(2016: US$395 million). Underlying net earnings (adjusted for the
after-tax amount of impairment charges, foreign exchange gains/
losses and change in fair value of contingent consideration liability)
in 2017 were US$376 million (2016: US$382 million). In August 2017,
the Company declared an interim dividend of US$0.14 per share
(2016: US$0.09 per share), which was paid in September 2017.
The Directors have proposed the payment of a final dividend of
US$0.30 per share (2016: US$0.18 per share).
Annual General Meeting
The AGM of shareholders of the Company will take place
on Wednesday 25 April 2018 at 11 am (BST) to be held at
etc. venues Monument, 8 Eastcheap, London, EC3M 1AE, UK.
Auditors
Each of the persons who is a Director at the date of approval
of this Annual Report confirms that:
• so far as the Director is aware, there is no relevant audit
information of which the Group’s auditor is unaware; and
• the Director has taken all steps that he or she ought to have
taken as a Director in order to make himself or herself aware
of any relevant audit information and to establish that the
Group’s auditor is aware of that information.
Deloitte LLP has expressed its willingness to continue in office
as auditor and a resolution to re-appoint it will be proposed at
the forthcoming AGM. The Audit and Risk Committee reviews
both the level of the audit fee and the level and nature of non-audit
fees as part of its review of the adequacy and objectivity of the
audit process.
Having taken all matters considered by the Board and brought to
the attention of the Board during the year into account, we are
satisfied that the Annual Report, taken as a whole, is fair, balanced
and understandable, and provides the information necessary for
shareholders to assess the Company’s performance, business
model and strategy.
On behalf of the Board
Bobby Godsell
Chairman
9 March 2018
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable law
and regulations.
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 as adopted for use in the
European Union (IFRS). The financial statements are required by law
to be properly prepared in accordance with the Companies (Jersey)
Law 1991. International Accounting Standard 1 requires that
financial statements present fairly for each financial year the Group’s
financial position, financial performance and cash flows. This
requires the faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and
recognition criteria for assets, liabilities, income and expenses set
out in the International Accounting Standards Board’s ‘Framework
for the preparation and presentation of financial statements’.
In virtually all circumstances, a fair presentation will be achieved by
compliance with all applicable IFRSs. However, the Directors are
also required to:
• 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 in
operation and meet its liabilities as they fall due over the
reasonably reliable lookout period of three years.
The Directors are responsible for keeping proper accounting records
that 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 (Jersey) Law
1991. 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 UK and Jersey governing the preparation
and dissemination of financial statements may differ from legislation
in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with
International Financial Reporting Standards, 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; and
• the management report, which is incorporated into 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.
By order of the Board,
Bobby Godsell
Chairman of the Board of Directors
Vitaly Nesis
Group Chief Executive Officer
9 March 2018
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 115
INDEPENDENT AUDITOR’S REPORT
Opinion
In our opinion the financial statements:
• give a true and fair view of the state of the Group’s affairs as at 31 December 2017 and of the Group’s profit for the year
then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
European Union and as issued by the International Accounting Standards Board (IASB); and
• have been properly prepared in accordance with Companies (Jersey) Law, 1991.
We have audited the financial statements of Polymetal International PLC and its subsidiaries (the Group) which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated balance sheet;
• the consolidated statement of cash flows;
• the consolidated changes in equity; and
• the related notes 1 to 34.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union
and as issued by the IASB.
Basis for opinion
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 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 (FRC’s) Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
• Recoverability of exploration and evaluation assets
• Recoverability of ore stock piles and heap leach work in progress
Materiality
Scoping
The materiality that we used for the Group financial statements was US$22 million (2016: US$21 million)
which was determined on the basis of adjusted profit before tax.
All reportable segments were subject to a full scope audit with the exception of the Armenian component
where specific procedures were performed. This represents a change from 2016 where the Armenian
component was subject to a full scope audit.
Significant changes
in our approach
The recoverability of operating and development assets and goodwill is no longer considered a significant
risk due to sustained stable operational performance of the assets and reduced volatility in gold, silver and
copper prices.
Accounting for acquisitions is also no longer considered a significant risk as the acquisitions to which it
related, being Kapan in Armenia for $38m and Komarovskoye in Kazakhstan for US$120 million, were made
in the prior year.
We confirm that we have nothing material to
report, add or draw attention to in respect
of these matters.
We confirm that we have nothing material to
report, add or draw attention to in respect
of these matters.
Conclusions relating to going concern, principal risks and viability statement
Going concern
We have reviewed the Directors’ statement in note 1 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 ability
to continue to do so over a period of at least twelve months from the date of approval of
the financial statements.
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.
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 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 70-76 that describe the principal risks and explain how they are
being managed or mitigated;
• the Directors’ confirmation on page 112 that they have carried out a robust assessment
of the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity; or
• the Directors’ explanation on page 112 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.
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.
116
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 117
INDEPENDENT AUDITOR’S REPORT
Recoverability of exploration and evaluation assets
Key audit matter
description
At 31 December 2017, the Group held US$150 million in respect of exploration and evaluation (E&E) assets.
Recoverability of E&E assets is dependent on the expected future success of exploration activities. E&E costs,
including geophysical, topographical, geological and similar types of costs, are capitalised into exploration assets if
management concludes that future economic benefits are likely to be realised based on an assessment of exploration
results and identified mineral resources.
The evaluation of each asset’s future prospects requires significant judgement. According to IFRS 6 Exploration for and
evaluation of mineral resources, the potential indicators of impairment include: management’s plans to discontinue the
exploration activities, lack of further substantial exploration expenditure planned, expiry of exploration licences in the
period or in the nearest future, or existence of other data indicating the expenditure capitalised is not recoverable.
The group’s accounting policy relating to E&E assets is set out on page 131 of the annual report,
along with the disclosure note on page 151, and the Audit Committee’s consideration of the risk on page 89.
How the
scope of our
audit responded
to the key audit
matter
We have reviewed and challenged management’s assumptions used in assessing the recoverability of the Group’s E&E
assets, the most significant being the Bolshevik asset in the Kazakhstan segment.
We have reviewed the Board minutes to ensure there are no plans to discontinue exploration activities and reviewed the
Board-approved budget for 2018 to check that specific exploration project spend was identified where relevant.
We have assessed the recoverability of assets by meeting with operational management to discuss material E&E
assets, reviewing drilling and other testing results in the year and confirming future development plans.
We have reviewed licence conditions to ensure there were no breaches of key terms, and no licences have expired or
expire in the near term.
We have performed detailed testing to assess the validity of costs capitalised in the year.
Key
observations
No impairments of E&E assets were identified from the work performed.
Recoverability of ore stock piles and heap leach work in progress
Key audit
matter
description
At 31 December 2017 the Group held US$265 million in respect of ore stockpiles and heap leach work in progress.
The write-downs of these metal inventories in the year ended 31 December 2017 were US$18 million.
The assessment of the recoverability of ore stockpiles and heap leach work in progress requires management
judgement in the determination of expected quantities of metal to be recovered, costs to process into concentrate
or Doré for sale, and in estimating future revenue to be realised on sale.
The Group’s accounting policy relating to valuation of inventory is set out on page 132 of the annual report,
along with the disclosure note on page 155, and the Audit Committee’s consideration of the risk on page 89.
How the
scope of our
audit responded
to the key audit
matter
We have attended inventory counts performed by management’s experts, performed roll forward testing from the
count dates through to year end by testing management’s metal inventory models and assessed management’s
experts’ methodology, expertise and objectivity.
To challenge management’s recoverability assessment, we have analysed the metal inventory balances to identify
adverse changes in costs per unit, and reviewed the production reports specifically focusing on unusual variances in
grades of ore extracted, stockpiled and processed, achieved recoveries and technical losses in comparison to prior
periods and approved life of mine plans.
Where a recoverability risk has been identified, we have recalculated the projected net realisable values based on
expected commodity prices, technological recoveries and costs to complete. We challenged management’s
assumptions against the achieved technological recoveries, actual processing costs in the year and the approved
life of mine plans.
We have also performed substantive analytical procedures on management’s inventory costing calculations.
Key
observations
No additional write-downs of ore stockpiles and heap leach work in progress were identified from the work performed.
Our application of 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 materiality
US$22 million (2016: US$21 million).
Basis for determining
materiality
We used adjusted profit before tax as a key benchmark, supported by a range of other relevant financial
metrics, for determining the Group’s materiality. This approach is consistent with our 2016 audit and has
given a materiality figure which represents 4.9% of the adjusted profit before tax figure (2016: 4%).
Rationale for the
benchmark applied
The profit before tax is adjusted to exclude net foreign exchange gains and losses which could, if included,
distort materiality year on year. The use of this metric is consistent with our 2016 audit and has been
chosen on the basis that the adjusted profit before tax is a key benchmark for management and
investors to appraise the group’s performance. The adjustment for US$10 million net foreign exchange
loss (2016: US$65 million net foreign exchange gain) is not significant in 2017.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of US$1.1m (2016: US$0.42m)
for the group, 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.
An overview of the scope of our audit
The group holds various mining assets in Russia, Kazakhstan and Armenia. Our audit scope focused primarily on nine identified components
(Voro, Okhotsk, Dukat, Omolon, Varvara, Amursk-Albazino, Mayskoye, Kyzyl and another single component comprising the support function
corporate entities) such that 96% of revenue (2016: 100%) and 98% of assets (2016: 97%) were subject to a full scope audit.
In addition to above, we have performed specific procedures on the Armenian component that consisted of specified procedures on
recoverability of E&E assets and on provisionally priced sales, and reviews of all other balances.
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there
were no significant risks of material misstatement in the aggregated financial information of the remaining components not subject to audit.
The Group audit team was involved in the work of the component auditors at all stages of the audit process. The signing partner and senior
members of the Group engagement team visited the head office in St. Petersburg regularly in the year and continued to follow a programme
of regular planned visits to the Group’s other business units which included a site visit to the Kyzyl mine in Kazakhstan in October 2017.
The Group audit team directed and reviewed in detail the work on significant risks performed by the component auditors.
Our audit work was executed at levels of materiality applicable to each individual component, which were between US$8.8 million and
US$19.8 million (2016: US$10.5 million and US$18.9 million).
Group revenue
(%)
Total assets
(%)
4
2
96
98
Full audit scope
Specified audit procedures
Full audit scope
Specified audit procedures
118
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 119
INDEPENDENT AUDITOR’S REPORT
We have nothing
to report in
respect of these
matters.
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 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 and Risk Committee reporting – the section describing the work of the Audit and Risk Committee does not
appropriately address matters communicated by us to the Audit and Risk 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.
Responsibilities of directors
As explained more fully in the statement of Directors’ responsibilities, 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 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 to cease operations, or have no realistic alternative but to do so.
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.
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/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law, 1991.
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.
Opinion on other matter prescribed by our engagement letter
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the provisions
of the UK Companies Act 2006 as if that Act had applied to the company.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies (Jersey) Law, 1991 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
We have nothing to report in
respect of these matters.
• proper accounting records have not been kept by the parent company, or proper returns adequate
for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.
James Leigh, FCA
For and on behalf of Deloitte LLP
Recognized Auditor
London
9 March 2018
120
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ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 121
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED BALANCE SHEET
Revenue
Cost of sales
Gross profit
General, administrative and selling expenses
Other operating expenses, net
Share of profit of associates and joint ventures
Operating profit
Foreign exchange (loss)/gain, net
Change in fair value of contingent consideration liability
Finance income
Finance costs
Profit before income tax
Income tax expense
Profit for the financial period
Profit for the financial period attributable to:
Equity shareholders of the Parent
Earnings per share (US$)
Basic
Diluted
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit for the period
Items that may be reclassified to profit and loss
Exchange differences on translating foreign operations
Currency exchange differences on intercompany loans forming
net investment in foreign operations, net of income tax
Total comprehensive income for the period
Total comprehensive income for period attributable to:
Equity shareholders of the Parent
Year ended
31 December
2017
US$m
Year ended
31 December
2016
US$m
Notes
6
7
11
12
20
28
15
16
30
30
1,815
(1,106)
709
(158)
(44)
3
510
(10)
2
4
(63)
443
(89)
354
354
354
0.82
0.81
1,583
(846)
737
(120)
(36)
–
581
65
(22)
3
(63)
564
(169)
395
395
395
0.93
0.93
Year ended
31 December
2017
US$m
Year ended
31 December
2016
US$m
354
113
(23)
444
444
444
395
280
(56)
619
619
619
Assets
Property, plant and equipment
Goodwill
Investments in associates and joint ventures
Non-current loans and receivables
Deferred tax asset
Non-current inventories
Total non-current assets
Current inventories
VAT receivable
Trade receivables and other financial instruments
Prepayments to suppliers
Income tax prepaid
Cash and cash equivalents
Total current assets
Total assets
Liabilities and shareholders' equity
Accounts payable and accrued liabilities
Current borrowings
Income tax payable
Other taxes payable
Current portion of contingent consideration liability
Total current liabilities
Non-current borrowings
Contingent consideration liability
Deferred tax liability
Environmental obligations
Other non-current liabilities
Total non-current liabilities
Total liabilities
NET ASSETS
Stated capital account
Share based compensation reserve
Translation reserve
Retained earnings
Total equity
31 December
2017
US$m
31 December
2016
US$m
Notes
18
19
20
16
21
21
22
23
26
24
28
24
28
16
25
30
31
2,054
1,805
18
96
15
61
123
2,367
514
96
71
38
6
36
761
3,128
(135)
(26)
(10)
(38)
(5)
(214)
(1,430)
(57)
(77)
(39)
(4)
(1,607)
(1,821)
1,307
2,031
21
(1,151)
406
1,307
17
25
10
38
113
2,008
493
61
70
31
18
48
721
2,729
(133)
(98)
(8)
(34)
(14)
(287)
(1,280)
(62)
(78)
(37)
(4)
(1,461)
(1,748)
981
2,010
12
(1,241)
200
981
Notes on pages 126 to 167 form part of these financial statements. These financial statements are approved and authorised for issue by the
Board of Directors on 9 March 2018 and signed on its behalf by:
Vitaly Nesis
Group Chief Executive
Bobby Godsell
Chairman of the Board of Directors
122
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 123
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Net cash generated by operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Acquisitions of joint ventures and associate
Loans forming part of the net investment in joint ventures
Nezhda call option premium paid
Acquisitions of subsidiaries*
Loans advanced
Receipt of repayment of loans provided
Net cash used in investing activities
Cash flows from financing activities
Borrowings obtained
Repayments of borrowings
Dividends paid
Contingent consideration paid
Net cash used in financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Effect of foreign exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the financial year
Year ended
31 December
2017
US$m
Year ended
31 December
2016
US$m
533
530
Notes
33
18
20
20
20
4
24
24
17
28
23
(383)
(16)
(52)
(12)
(7)
(18)
11
(477)
3,108
(3,032)
(138)
(5)
(67)
(11)
48
(1)
36
(271)
(21)
–
–
(107)
(4)
2
(401)
1,436
(1,410)
(158)
(2)
(134)
(5)
52
1
48
* Includes US$5 million outstanding as of 31 December 2016 (Note 26), paid during the year ended 31 December 2017 for Kapan acquisition.
Number
of shares
outstanding
(unaudited)
Notes
Stated
capital
account
Share based
compensation
reserve
Translation
reserve
Retained
earnings
Total equity
attributable
to the parent
Balance at 1 January 2016
Profit for the financial year
Other comprehensive income,
net of income tax
Share based compensation
Shares alloted to employees
Issue of shares to acquire
non-controlling interest
Issue of shares in exchange
for asset acquisitions
Issue of shares for business acquisition
Dividends
424,650,138
1,969
–
–
–
110,850
898,875
1,120,690
1,481,785
–
31
31
30
4
4
17
–
–
–
1
14
11
15
–
6
–
–
7
(1)
–
–
–
–
(1,465)
–
224
–
–
–
–
–
–
Balance at 31 December 2016
428,262,338
2,010
12
(1,241)
Profit for the financial year
Other comprehensive income,
net of income tax
Share based compensation
Shares allotted to employees
Issue of shares to acquire
non-controlling interest
Issue of shares for contingent consideration
–
–
–
144,219
893,575
815,348
31
31
30
Dividends
Balance at 31 December 2017
17
–
430,115,480
–
–
–
1
10
10
–
–
–
10
(1)
–
–
–
–
90
–
–
–
–
–
2,031
21
(1,151)
(23)
395
487
395
Total
equity
487
395
–
–
–
(14)
–
–
(158)
200
354
–
–
–
(10)
–
(138)
406
224
224
7
–
–
11
15
7
–
–
11
15
(158)
(158)
981
354
981
354
90
10
–
–
10
90
10
–
–
10
(138)
(138)
1,307
1,307
124
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Corporate information
Polymetal Group (the Group) is a leading gold and silver mining group, operating in Russia, Kazakhstan and Armenia.
Polymetal International plc (the Company) is the ultimate parent entity of Polymetal Group. The Company was incorporated in 2010 as a
public limited company under Companies (Jersey) Law 1991 and has its place of business in Cyprus. Its shares are traded on the London
and Moscow stock exchanges.
Significant subsidiaries
As at 31 December 2017 the Company held the following significant mining and production subsidiaries:
Name of subsidiary
Gold of Northern Urals CJSC
Deposits and
production
facilities
Vorontsovskoye
Segment
Ural
Okhotskaya Mining and Exploration Company LLC
Avlayakan
Khabarovsk
Khakanzha plant
Svetloye
Khabarovsk
Magadan
Russia
Russia
Russia
Russia
Effective interest held, %
Country of
incorporation
31 December
2017
31 December
2016
Svetloye LLC
Magadan Silver JSC
Mayskoye Gold Mining Company LLC
Omolon Gold Mining Company LLC
Dukat
Lunnoe
Arylakh
Goltsovoye
Mayskoye
Birkachan
Tsokol
Dalneye
Sopka Kvartsevaya
Olcha
Magadan
Magadan
Russia
Russia
Albazino Resources Ltd
Albazino
Khabarovsk
Amur Hydrometallurgical Plant LLC
AGMK Plant
Khabarovsk
Russia
Russia
Varvarinskoye JSC
Bakyrchik Mining Venture LLC
Inter Gold Capital LLC
Varvarinskoye
Kazakhstan
Kazakhstan
Bakyrchik
Bolshevik
Kazakhstan
Kazakhstan
Kazakhstan
Kazakhstan
Komarovskoye Mining Company LLC
Komarovskoye
Kazakhstan
Kazakhstan
Kapan MPC CJSC
Kapan
Armenia
Armenia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Going concern
In assessing its going concern status, the Group has taken account of its financial position, anticipated future trading performance, its
borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings and its capital expenditure
commitments and plans. As at 31 December 2017, the Group held US$36 million of cash and had net debt of US$1,420 million, with
US$1,361 million of additional undrawn facilities of which US$1,266 million are considered committed. Debt of US$26 million is due for
payment within one year. The Group’s cash generation and liquidity remains strong and the Group believes it will be able to operate within
existing facilities, but could secure additional financing if and when needed.
The Board is satisfied that the Group’s forecasts and projections, having taken account of reasonably possible changes in trading
performance, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date
of this report and that it is appropriate to adopt the going concern basis in preparing the consolidated financial statements for the year ended
31 December 2017.
Basis of presentation
The Group’s annual consolidated financial statements for the year ended 31 December 2017 are prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union. The financial statements have been prepared on the historical cost
basis, except for certain financial instruments which are measured at fair value as of end of the reporting period and share-based payments
which are recognised at fair value as of measurement date.
The following accounting policies have been applied in preparing the consolidated financial statements for the year ended
31 December 2017.
Amended accounting standards adopted by the Group
The following amendments to IFRSs became mandatory effective during the year ended 31 December 2017. The amendments generally
require full retrospective application, with some amendments requiring prospective application.
• Amendments to IAS 7 Disclosure Initiative;
• Amendments to IAS 7 Recognition of Deferred Tax Assets for Unrealised Losses; and
• Amendments to IFRS 12 included in Annual Improvements to IFRS Standards 2014-2016 Cycle.
The Group has determined these amendments do not have significant impact on its consolidated financial statements.
New accounting standards issued but not yet effective
IFRS 15 Revenue from Contracts with Customers. In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers
(IFRS 15), which covers principles that an entity shall apply to report information to users of financial statements about the nature, amount,
timing, and uncertainty of revenue and cash flows arising from a contract with a customer. Application of the standard is mandatory for
annual reporting periods beginning on or after 1 January 2018, with earlier application permitted. The Group has determined the impact of
IFRS 15 on its consolidated financial statements with the primary focus being understanding those sales contracts where the timing and
amount of revenue recognised could differ under IFRS 15, which may occur for example if contracts with customers incorporate
performance obligations not currently recognised separately, or where such contracts incorporate variable consideration.
The Group’s revenue is primarily derived from commodity sales, for which the point of recognition is dependent on the contract sales terms,
known as the international commercial terms (Incoterms). As the transfer of risks and rewards generally coincides with the transfer of
control at a point in time under incoterms, the timing and amount of revenue recognised by the Group for the sale of commodities is not
materially affected.
For the Incoterms Cost, Insurance and Freight (CIF) and Cost and Freight (CFR) the seller must contract for and pay the costs and freight
necessary to bring the goods to the named port of destination. Consequently, the freight service on export commodity contracts with CIF/
CFR incoterms represents a separate performance obligation as defined under the new standard, and a portion of the revenue earned under
these contracts, representing the obligation to perform the freight service, is deferred and recognised over time as this obligation is fulfilled,
along with the associated costs.
The impact of applying the change during the year ended 31 December 2017 would be to reduce revenue and operating costs respectively
by US$9 million with no impact on profit. There would be no effect on current assets and current liabilities as at 31 December 2017.
The Group plans to use the modified approach, so the cumulative effect of initially applying IFRS 15 will be recognised as an adjustment to
the opening balance of retained earnings as of 1 January 2018.
IFRS 9 Financial instruments. In July 2014, the IASB issued the final version of IFRS 9 Financial instruments (‘IFRS 9’). This standard is
effective for annual periods beginning on or after 1 January 2018, and permits early adoption. IFRS 9 provides a revised model for
recognition, measurement and impairment of financial instruments. IFRS 9 also includes a substantially reformed approach to hedge
accounting. The Group has determined the impact of IFRS 9 on its consolidated financial statements with the primary focus being on
the application of the ‘expected credit loss’ model under which an entity calculates the allowance for credit losses by considering on a
discounted basis the cash shortfalls it would incur in various default scenarios for prescribed future periods and multiplying the shortfalls
by the probability of each scenario occurring.
The impacts of adopting IFRS 9 on the Group results for the year ended 31 December 2017 are as follows:
• Impairment: The impact of the introduction of an ‘expected credit loss’ model for the assessment of impairment of financial assets held
under amortised cost would be to increase the Group’s operating costs by US$4 million and decrease the Group’s profit before tax by
US$4 million for the year ended 31 December 2017, and to reduce current assets by US$4 million at 31 December 2017.
• Classification and measurement: The measurement and accounting treatment of the Group’s financial assets is unchanged on application
of the new standard.
• Hedge accounting: no impact as the Group does not elect to use hedge accounting.
As these effects are considered immaterial to the Group, the Group has elected not to restate prior period on adoption of the new standard
in 2018.
IFRS 16 Leases. IFRS 16 replaces the following standards and interpretations: IAS 17 Leases and IFRIC 4 Determining whether an
Arrangement contains a Lease. The new standard provides a single lessee accounting model for the recognition, measurement, presentation
and disclosure of leases. IFRS 16 applies to all leases including subleases and requires lessees to recognise assets and liabilities for all
leases, unless the lease term is 12 months or less, or the underlying asset has a low value. Lessors continue to classify leases as operating
or finance. Application of the standard is mandatory for annual reporting periods beginning on or after 1 January 2019, with earlier
application permitted. The Group is in the process of determining the impact of IFRS 16 on its consolidated financial statements.
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Joint Ventures: Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture remove an inconsistency between the two standards on the accounting treatment for gains and losses
arising on the sale or contribution of assets by an investor to its associate or joint venture. Following the amendment, such gains and losses
may only be recognised to the extent of the unrelated investor’s interest, except where the transaction involves assets that constitute a
business. In December 2015, the IASB has postponed the effective date of this amendment indefinitely pending the outcome of its research
project on the equity method accounting. The Group doesn’t expect it to have a material impact on its consolidated financial statements.
126
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL CONTINUED
The following standards and interpretations were in issue but not yet effective as of reporting date and are not applicable or have no
effect to the Group:
• Amendments to IAS 40 Investment Property, effective for annual period beginning on or after 1 January 2018;
• Amendments to IAS 1 First-time Adoption of International Financial Reporting Standards, effective for annual period beginning
on or after 1 January 2018;
• Amendments to IFRS 2 Share-based payments, effective for annual period beginning on or after 1 January 2018;
• IFRIC 22 Foreign Currency Transactions and Advance Consideration, effective for annual period beginning on or after 1 January 2018; and
• IFRIC 23 Uncertainty over Income Tax Treatment, effective for annual period beginning on or after 1 January 2019.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidations
Subsidiaries
The consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries, from the date
that control effectively commenced until the date that control effectively ceased. Control is achieved where the Company 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.
Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the
effective date of acquisition and up to the effective date of disposal, as appropriate.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used
by the Group.
All intra-group balances, transactions and any unrealised profits or losses arising from intra-group transactions are eliminated on consolidation.
Changes to the Group’s ownership interests that do not result in a loss of control over the subsidiaries are accounted for as equity
transactions. The carrying amount of the Group’s interests and non-controlling interests are adjusted to reflect the change in their relative
interests in the subsidiaries. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of the
consideration paid or received is recognised directly in equity and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on the disposal is calculated as the difference between 1) the aggregated
fair value of the consideration received and the fair value of any retained interest and 2) the previous carrying amount of the assets
(including goodwill), and liabilities of the subsidiary and non-controlling interests.
Business combinations
IFRS 3 Business Combinations applies to a transaction or other event that meets the definition of a business combination. When acquiring
new entities or assets, the Group applies judgement to assess whether the assets acquired and liabilities assumed constitute an integrated
set of activities, whether the integrated set is capable of being conducted and managed as a business by a market participant, and thus
whether the transaction constitutes a business combination, using the guidance provided in the standard. Acquisitions of businesses are
accounted for using the acquisition method. The consideration for each acquisition is measured at the aggregate of the fair values (at the
date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of
the acquiree. Acquisition-related costs are recognised in the consolidated income statement as incurred. Transaction costs incurred in
connection with the business combination are expensed. Provisional fair values are finalised within 12 months of the acquisition date.
Where applicable, the consideration for the acquisition may include an asset or liability resulting from a contingent consideration
arrangement. Contingent consideration is measured at its acquisition date fair value and included as part of the consideration transferred
in a business combination. Subsequent changes in such fair values are adjusted against the cost of acquisition retrospectively with the
corresponding adjustment against goodwill where they qualify as measurement period adjustments. Measurement period adjustments
are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed
at the acquisition date. The measurement period may not exceed one year from the effective date of the acquisition. The subsequent
accounting for contingent consideration that does not qualify for as a measurement period adjustment is based on how the contingent
consideration is classified. Contingent consideration that is classified as equity is not subsequently remeasured. Contingent consideration
that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with IAS 37 Provisions, Contingent
Liabilities and Contingent Assets or IAS 39 Financial Instruments Recognition and Measurement with the corresponding amount being
recognised in profit or loss.
The identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:
• deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in
accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;
• liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements
of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2
Share-based Payment at the acquisition date; and
• assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations are measured in accordance with that Standard.
Where a business combination is achieved in stages, the Group’s previously held interests in the acquired entity are remeasured to fair value
at the acquisition date (i.e. the date the Group attains control) and the resulting gain or loss, if any, is recognised in the consolidated income
statement. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in equity are
reclassified to profit or loss, where such treatment would be appropriate if that interest was disposed of.
Goodwill and goodwill impairment
Goodwill arising in a business combination is recognised as an asset at the date that control is acquired (the acquisition date). Goodwill is
measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair
value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition date amounts of the identifiable
assets acquired and the liabilities assumed.
If the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount
of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any),
the excess is recognised immediately in the consolidated income statement as a bargain purchase gain.
Goodwill is not amortised but is reviewed for impairment at least annually. For the purpose of impairment testing, goodwill is allocated
to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which
goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired.
If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount
of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, the attributable goodwill is included in the determination of the profit or loss on disposal.
Acquisition of mining licences
The acquisition of mining licences is often effected through a non-operating corporate entity. As these entities do not represent a business,
it is considered that the transactions do not meet the definition of a business combination and, accordingly, the transaction is accounted for
as the acquisition of an asset. The net assets acquired are accounted for at cost. Where asset acquisition is achieved in stages net assets
acquired are accounted for sum of cost of the original interest acquired and the cost of additional interest acquired.
Investments in associates and joint ventures
An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint arrangement.
Significant influence constitutes the power to participate in the financial and operating policy decisions of the investee but does not extend
to a control or joint control over the enactment of those policies. The results and assets and liabilities of associates are incorporated in the
consolidated financial statements using the equity method of accounting.
A joint arrangement is defined as an arrangement of which two or more parties have joint control. Joint control is the contractually agreed
sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control.
A joint operation is a joint arrangement in which the parties that share joint control have rights to the assets, and obligations for the liabilities,
relating to the arrangement. This includes situations where the parties benefit from the joint activity through a share of the output, rather
than by receiving a share of the results of trading. In relation to its interest in a joint operation, the Group recognises: its share of assets
and liabilities; revenue from the sale of its share of the output and its share of any revenue generated from the sale of the output by the
joint operation; and its share of expenses.
A joint venture is a joint arrangement in which the parties that share joint control have rights to the net assets of the arrangement and is
accounted for using the equity accounting method.
When entering in a new joint arrangement, the Group applies judgement to assess whether the parties that have joint control over the
arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement (joint operation) or rights to the net
assets of the arrangement (joint venture), using the guidance provided in the standard. When a joint arrangement has been structured
through a separate vehicle, consideration has been given to the legal form of the separate vehicle, the terms of the contractual arrangement
and, when relevant, other facts and circumstances.
Equity method of accounting
The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates.
For all Russian entities the functional currency is the Russian Rouble (RUB). The functional currency of the Group’s entities located and
operating in Kazakhstan (Varvarinskoye JSC, Bakyrchik Mining Venture LLC, Inter Gold Capital LLC, Komarovskoye Mining Company LLC)
is the Kazakh Tenge (KZT). The functional currency of the Group’s entity located and operating in Armenia (Kapan MPC CJSC) is the
Armenian Dram (AMD). The functional currency of the parent company Polymetal International plc and its intermediate holding companies
is US Dollar.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of
an investee at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess
of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after
reassessment, is recognised immediately in profit or loss.
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the
Group’s investments. Where an indicator of impairment exists or the carrying value of the asset contains goodwill with an indefinite useful life,
the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets
(IAS 36) as a single cash generating unit through the comparison of its recoverable amount (the higher of value in use and fair value less
costs to sell) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal
of that impairment loss is recognised in accordance with IAS 36.
When a Group entity transacts with its investees, profits and losses resulting from the transactions with the investee are recognised in the
Group’s consolidated financial statements only to the extent of interests in the associate or the joint venture that are not related to the Group.
Functional and presentation currency
The functional currency for each entity in the Group is determined as the currency of the primary economic environment in which it operates.
For all Russian entities the functional currency is the Russian Rouble (RUB). The functional currency of the Group’s entities located and
operating in Kazakhstan (Varvarinskoye JSC, Bakyrchik Mining Venture LLC, Inter Gold Capital LLC, Komarovskoye Mining Company LLC)
is the Kazakh Tenge (KZT). The functional currency of the Group’s entity located and operating in Armenia (Kapan MPC CJSC) is the
Armenian Dram (AMD). The functional currency of the parent company Polymetal International plc and its intermediate holding companies
is US Dollars.
The Group has chosen to present its consolidated financial statements in U.S. Dollars (US$), as management believes it is a more
convenient presentation currency for international users of the consolidated financial statements of the Group as it is a common presentation
currency in the mining industry. The translation of the financial statements of the Group entities from their functional currencies to the
presentation currency is performed as follows:
• all assets and liabilities are translated at closing exchange rates at each reporting period end date;
• all income and expenses are translated at the average exchange rates for the periods presented, except for significant transactions
that are translated at rates on the date of such transactions;
• resulting exchange differences are recognised in other comprehensive income and presented as movements relating to the effect of
translation to the Group’s presentation currency within the Translation reserve in equity; and
• in the consolidated statement of cash flows, cash balances at the beginning and end of each reporting period presented are translated
using exchange rates prevalent at those respective dates. All cash flows in the period are translated at the average exchange rates for
the periods presented, except for significant transactions that are translated at rates on the date of transaction.
On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of
control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that
includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation),
all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are
reclassified to profit or loss.
In the case of a partial disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation,
the proportionate share of accumulated exchange differences are re-attributed to non-controlling interests and are not recognised in
the consolidated income statement. For all other partial disposals (i.e. reductions in the Group’s ownership interest in associates or jointly
controlled entities that do not result in the Group losing significant influence or joint control), the proportionate share of the accumulated
exchange differences is reclassified to the consolidated income statement.
Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated
as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period.
Exchange differences arising are recognised in equity.
The Group translates its income and expenses in presentation currency on a monthly basis. During the years ended 31 December 2017
and 31 December 2016 exchange rates used in the preparation of the consolidated financial statements were as follows:
31 December 2017
Year ended
Average
Maximum monthly rate
Minimum monthly rate
31 December 2016
Year ended
Average
Maximum monthly rate
Minimum monthly rate
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Russian
Rouble/
US Dollar
Kazakh
Tenge/
US Dollar
Armenian
Dram/
US Dollar
57.60
58.35
59.96
56.43
60.66
67.07
77.23
62.20
332.33
326.02
338.78
312.48
333.29
341.81
361.53
332.19
484.10
482.71
486.51
478.25
483.94
480.49
493.83
474.10
The Russian Rouble, Kazakh Tenge and Armenian Dram are not freely convertible currencies outside the Russian Federation, Kazakhstan
and Armenia, accordingly, any translation of Russian Rouble, Kazakh Tenge and Armenian Dram denominated assets and liabilities into
US Dollar for the purpose of the presentation of consolidated financial statements does not imply that the Group could or will in the future
realise or settle in US Dollars the translated values of these assets and liabilities.
Foreign currency transactions
Transactions in currencies other than an entity’s functional currencies (foreign currencies) are recorded at the exchange rates prevailing
on the dates of the transactions. All monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates
prevailing at the reporting date. Non-monetary items carried at historical cost are translated at the exchange rate prevailing on the date of
transaction. Non-monetary items carried at fair value are translated at the exchange rate prevailing on the date on which the most recent fair
value was determined. Exchange differences arising from changes in exchange rates are recognised in the consolidated income statement.
Exchange differences generated by monetary items that forms part of the intragroup net investment in the foreign operation are recognised
in the consolidated financial statements within foreign currency translation reserve.
Property, plant and equipment
Mining assets
Mining assets include the cost of acquiring and developing mining assets and mineral rights. Mining assets are depreciated to their residual
values using the unit-of-production method based on proven and probable ore reserves according to the JORC Code, which is the basis on
which the Group’s mine plans are prepared. Changes in proven and probable reserves are dealt with prospectively. Depreciation is charged
on new mining ventures from the date that the mining asset is capable of commercial production. In respect of those mining assets whose
useful lives are expected to be less than the life of the mine, depreciation over the period of the asset’s useful life is applied.
Mineral rights for the assets under development are included within Exploration and development. When a production phase is started,
mineral rights are transferred into Mining assets and are depreciated as described below.
Capital construction-in-progress
Capital construction-in-progress assets are measured at cost less any recognised impairment. Depreciation commences when the assets
are ready for their intended use.
Exploration and development assets
Mineral exploration and evaluation costs, including geophysical, topographical, geological and similar types of costs, are capitalised into
exploration assets if management concludes that future economic benefits are likely to be realised based on current internal assessment
of exploration results and identified mineral resources.
Exploration and evaluation expenditures are transferred to development assets when commercially-viable reserves are identified, so that the
entity first establishes proved-and-probable reserves in accordance with JORC Code and respective mining plan and model are prepared
and approved. At the time of reclassisfication exploration and evaluation assets are assessed for impairment based on the economic
models prepared.
The costs to remove any overburden and other waste materials to initially expose the ore body, referred to as stripping costs, are capitalised
as a part of mining assets when these costs are incurred.
Non-mining assets
Non-mining assets are depreciated to their residual values on a straight-line basis over their estimated useful lives. When parts of an item of
property, plant and equipment are considered to have different useful lives, they are accounted for and depreciated separately. Depreciation
methods, residual values and estimated useful lives are reviewed at least annually.
Estimated useful lives are as set out below:
• Machinery and equipment
5 – 20 years
• Transportation and other assets
3 – 10 years
Assets held under finance leases are depreciated over the shorter of the lease term and the estimated useful lives of the assets.
Gains or losses on disposal of property, plant and equipment are determined by comparing the proceeds from disposal with the asset’s
carrying amount at the date. The gain or loss arising is recognised in the consolidated income statement.
Stripping costs
During the production phase of a mine when the benefit from the stripping activity is the improved access to a component of the ore body
in future periods, the stripping costs in excess of the average ore to waste ratio for the life-of-mine of that component are recognised as a
non-current asset. After initial recognition, the stripping activity asset is depreciated on a systematic basis (unit-of-production method)
over the expected useful life of the identified component of the ore body made accessible as a result of the stripping activity.
Estimated ore reserves
Estimated proven and probable ore reserves reflect the economically recoverable quantities which can be legally recovered in the future
from known mineral deposits. The Group’s reserves are estimated in accordance with JORC Code.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Leases
Operating leases
Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals arising under
operating leases are recognised as an expense in the period in which they are incurred.
Impairment of property, plant and equipment
An impairment review of property, plant and equipment is carried out when there is an indication that those assets have suffered an
impairment loss. If any such indication exists, the carrying amount of the asset is compared to the estimated recoverable amount of the
asset in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an
individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. The carrying amounts of all the cash-generating units are
assessed against their recoverable amounts determined based on a fair value less costs to sell calculation. Fair value is based on the
application of the Discounted Cash Flow Method (DCF) using post-tax cash flows. The DCF method is attributable to the development of
proved and probable reserves and certain resources where a relevant resource-to-reserve conversion ratio can be reasonably applied.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the
asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately in the
consolidated income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate
of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the original carrying amount that would
have been determined had no impairment loss been recognised in prior periods. Impairment loss may be subsequently reversed if there has
been a significant change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised.
A reversal of an impairment loss is recognised in the consolidated income statement immediately.
Inventories
Metal inventories
Inventories including refined metals, metals in concentrate and in process, doré and ore stockpiles are stated at the lower of production cost
or net realisable value. Production cost is determined as the sum of the applicable expenditures incurred directly or indirectly in bringing
inventories to their existing condition and location. Work in-process, metal concentrate, doré and refined metal are valued at the average
total production costs at each asset’s relevant stage of production (i.e. the costs are allocated proportionally to unified metal where unified
metal is calculated based on prevailing market metal prices). Ore stockpiles are valued at the average cost of mining that ore. Where ore
stockpiles and work in-process are not expected to be processed within 12 months, those inventories are classified as non-current.
Net realisable value represents the estimated selling price for that product based on forward metal prices for inventories which are expected
to be realised within 12 months, and the flat long-term metal prices non-current inventories, less estimated costs to complete production and
selling costs.
Consumables and spare parts
Consumables and spare parts are stated at the lower of cost or net realisable value. Cost is determined on the weighted average moving
cost. The portion of consumables and spare parts not reasonably expected to be used within one year is classified as a long-term asset in
the Group’s consolidated balance sheet. Net realisable value represents the estimated selling price less all estimated costs of completion
and costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or
issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added
to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the
consolidated income statement.
Financial Instruments Designated as Fair Value Through Profit and Loss (FVTPL)
A financial instrument other than a financial instrument held for trading may be designated as at FVTPL upon initial recognition if:
• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
• the financial instrument forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is
evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information
about the grouping is provided internally on that basis; or
• it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and
Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
Financial instruments at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss.
Fair value is determined in the manner described in Note 28.
Effective interest rate method
The effective interest rate method is a method of calculating the amortised cost of a financial instrument and of allocating interest income or
expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash receipts or payments (including
all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts)
through the expected life of the financial instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.
Financial assets
Non-derivative financial assets are classified into the following specified categories: FVTPL, available for sale (AFS) financial assets and
‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial
recognition. No financial instruments have been classified as available for sale and FVTPL.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans
and receivables are measured at amortised cost using the effective interest rate method, less any impairment. Interest income is determined
by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets
are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment have been affected. For equity investments classified as
AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.
For all other financial assets objective evidence of impairment could include:
• significant financial difficulty of the issuer or counterparty; or
• breach of contract, such as a default or delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankruptcy or financial re-organisation; or
• the disappearance of an active market for that financial asset because of financial difficulties.
For financial assets carried at amortised cost, the amount of the impairment loss recognised is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade
receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered
uncollectible, it is written-off against the allowance account. Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account are recognised in the consolidated income statement.
For financial assets measured at amortised cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease
can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed
through the consolidated income statement to the extent that the carrying amount of the investment at the date the impairment is reversed
does not exceed what the amortised cost would have been had the impairment not been recognised.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains
substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest
in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership
of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the
proceeds received.
Financial liabilities
Other financial liabilities
Other financial liabilities (including borrowings) are subsequently measured at amortised cost using the effective interest rate method.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised
in the consolidated income statement.
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely
related to those of the host contracts and the hybrid contracts are not measured at FVTPL. Further details of derivative financial instruments
are disclosed in Note 28.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are
substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation.
All other borrowing costs are recognised in the consolidated income statement in the period in which they are incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, cash deposits and highly liquid investments with original maturities of three months
or fewer, which are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the
Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of those cash flows.
Environmental obligations
An obligation to incur environmental restoration, rehabilitation and decommissioning costs arises when disturbance is caused by the
development or ongoing production of mining assets. Such costs arising from the decommissioning of plant and other site preparation work,
discounted to their net present value using a risk-free rate applicable to the future cash flows, are provided for and capitalised at the start of
each project, as soon as the obligation to incur such costs arises. These costs are recognised in the consolidated income statement over
the life of the operation, through the depreciation of the asset in the cost of sales line and the unwinding of the discount on the provision in
the finance costs line. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided
for at their net present values and recognised in the consolidated income statement as extraction progresses.
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
the consolidated income statement.
The provision for closure cost obligations is remeasured at the end of each reporting period for changes in estimates and circumstances.
Changes in estimates and circumstances include changes in legal or regulatory requirements, increased obligations arising from additional
mining and exploration activities, changes to cost estimates and changes to the risk free interest rate.
Employee benefit obligations
Remuneration paid to employees in respect of services rendered during a reporting period is recognised as an expense in that reporting
period. The Group pays mandatory contributions to the state social funds, including the Pension Fund of the Russian Federation and
Kazakhstan, which are expensed as incurred.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax. Income taxes are computed in accordance with
the laws of countries where the Group operates.
Current tax
The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported in the consolidated income
statement because of items of income or expense that are taxable or deductible in other periods and items that are never taxable or deductible.
The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial
statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for
all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is
probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets
and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and
interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated
with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against
which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or
the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group
expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities
and 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.
Current and deferred tax
Current and deferred tax is recognised in the consolidated income statement, except when they relate to items that are recognised in the
consolidated statement of comprehensive income or directly in equity, in which case, the current and deferred tax is also recognised in
consolidated statement of comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial
accounting for a business combination, the tax effect is included in the accounting for the business combination.
Uncertain tax positions
Provision for uncertain tax positions is recognised within current tax when management determines that it is probable that a payment will
be made to the tax authority. For such tax positions the amount of the probable ultimate settlement with the related tax authority is recorded.
When the uncertain tax position gives rise to a contingent tax liability for which no provision is recognised, the Group discloses tax-related
contingent liabilities and contingent assets in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Revenue recognition
Revenue is derived principally from the sale of gold and silver bullions and copper, gold and silver concentrate and is measured at the fair
value of consideration received or receivable, after deducting discounts.
Revenue from the sale of gold and silver bullion and sale of copper, gold and silver concentrate is recognised when the risks and rewards
of ownership are transferred to the buyer, the Group retains neither a continuing degree of involvement nor control over the goods sold,
the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the
Group. Revenue from the sale of gold and silver bullion represents the invoiced value of metal shipped to the buyer, net of value added tax (VAT).
Sale of gold and silver bullion
The Group processes doré produced in the Russian Federation (at Dukat, Okhotsk operations, Voro, Omolon, and Amursk-Albazino) into
London Good Delivery Bars prior to sale. This final stage of processing is carried out on a toll-treatment basis at four state-owned refineries.
The Group sells gold and silver bullion to banks through long-term agreements. The sales price, as determined in the agreement, may be
variable based upon the London Bullion Market Association (LBMA) spot or fixed price, however the Group does not enter into fixed price
contracts. For domestic sales, title passes from the Group to the purchaser at the refinery gate with revenue recognised at that point. For
export sales, once the gold and/or silver bars have been approved for export by Russian customs, they are then transported to the vault of
the purchaser, which is typically located in London. Title passes and revenue is recognised at the point when the gold and/or silver bars are
received by the purchaser.
Sales of copper, zinc, gold and silver concentrate
The Group sells copper, zinc, gold and silver concentrate under pricing arrangements where final prices are determined by quoted market
prices in a period subsequent to the date of sale. Concentrate sales are initially recorded based on forward prices for the expected date of
final settlement. Revenue is recorded at the time of shipment, which is also when risks and rewards pass to the buyer. Revenue is calculated
based on the copper, zinc, gold and silver content in the concentrate and using the forward London Bullion Market Association (LBMA) or
London Metal Exchange (LME) price to the estimated final pricing date, adjusted for the specific terms of the relevant agreement. Until final
settlement occurs, adjustments to revenue are made to take into account the changes in metal quantities upon receipt of new information
and assay. Revenue is presented net of refining and treatment charges which are subtracted in calculating the amount to be invoiced.
The Group’s sales of copper, zinc, gold and silver concentrate are based on a provisional price and as such, contain an embedded derivative that is
required to be separated from the host contract for accounting purposes. The host contract is the receivable from the sale of the concentrate at the
forward exchange price at the time of sale. The embedded derivative, which does not qualify for hedge accounting, is measured at FVTPL with
changes in its fair value recognised within revenue in the consolidated income statement for each period prior to the final settlement.
Share-based compensation
The Group applies IFRS 2 Share-based Payments to account for share-based compensation. IFRS 2 requires companies to recognise
compensation costs for share-based payments to employees based on the grant-date fair value of the award.
The fair value of the awards granted under Performance Share Plan (as defined in the Remuneration report) is estimated using a
Monte-Carlo model valuation (see note 31).
Awards which are granted under Deferred Share Awards plan and are released over a period of three years, are measured at share price
at a grant date and are prorated across periods to the different vest dates (see Note 31).
The fair value of the awards granted is recognised as a general, administrative and selling expense over the vesting period with a
corresponding increase in the share-based compensation reserve. Upon the exercise of the awards the amounts recognised within
the share-based compensation reserve are transferred to stated capital account.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Earnings per share
Earnings-per-share calculations are based on the weighted average number of common shares outstanding during the period. Diluted
earnings per share are calculated using the treasury stock method, whereby the proceeds from the potential exercise of dilutive stock
options with exercise prices that are below the average market price of the underlying shares are assumed to be used in purchasing
the Company’s common shares at their average market price for the period.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the course of preparing the financial statements, management necessarily makes judgements and estimates that can have a significant
impact on those financial statements. The determination of estimates requires judgements which are based on historical experience,
current and expected economic conditions, and all other available information.
Estimates and underlying assumptions are reviewed on an ongoing basis, with revisions recognised in the period in which the estimates
are revised and in the future periods affected. The judgements involving a higher degree of estimation or complexity are set out below.
Critical accounting judgements
The following are the critical judgements, apart from those involving estimation (which are dealt with separately below), made in the
process of applying the Group’s accounting policies during the year that have the most significant effect on the amounts recognised
in the financial statements.
Accounting for joint arrangements
When the Group enters into arrangements with other parties for the joint ownership of particular assets or developments, it must assess
whether the arrangements constitute control, joint operations or a joint venture based on the rights and obligations of the parties to the
joint arrangements (Note 2 sets out the related accounting policies).
As at 31 December 2016, the Group held a 17.66% interest in JSC South-Verkhoyansk Mining Company (Nezhda) with a carrying
value of US$21 million (see note 20 to the financial statements). At that time, the Group considered its associated rights and obligations,
and concluded that it jointly controlled Nezhda.
In July 2017 Polymetal entered into an agreement to acquire an additional 7% in Nezhda for a cash consideration of US$8 million, from its
joint venture partner. At the same time, the Group acquired an option to buy out the remaining 75.3% in Nezhda, which is exercisable
between 1 February and 1 June 2018 at the Group’s discretion, with the option cost being US$12 million. The completion of the purchase of
the additional 7% share in the JV and exercise of the option are subject to various Governmental approvals as noted below. The Group has
determined that until it is able to complete these transactions, it remains in joint control over Nezhda, and accordingly the classification of
the arrangements continue to meet the definition of a joint venture as per IFRS Joint arrangements.
Assessment of indicators of impairment of operating and development assets
The Group is required to conduct an impairment test where there is an indication of impairment of an asset or a cash-generating unit.
For goodwill, an annual impairment test is required. Judgement is required in the assessment of whether indicators or impairment
(or its reversal) exist.
Operating and economic assumptions, which could affect the valuation of assets using discounted cash flows, are updated regularly as
part of the Group’s planning and forecasting processes. Significant judgement is required to determine whether any economic or operating
assumptions represent significant changes in the economic value of an asset or CGU. Discounted cash flow models are prepared on the
basis of such assumptions to determine whether there are any indicators of impairment or impairment reversal.
In addition, indicators for impairment reversal must be assessed for assets (other than goodwill) previously impaired. Any change to
operational plans or assumptions, economic parameters, or the passage of time, could result in an impairment reversal, or further
impairment, if an indicator is identified.
In making the assessment for impairment indicators, assets that do not generate independent cash inflows are allocated to an appropriate
cash-generating unit. Management necessarily applies judgement in allocating assets that do not generate independent cash inflows to
appropriate cash-generating units, and also in estimating the timing and value of underlying cash flows within the value-in-use calculation.
Subsequent changes to the cash-generating unit allocation or to the timing of cash flows could impact the carrying value of the respective
assets. Refer to Note 19 for further information.
Recoverability of exploration and evaluation assets
Exploration and evaluation assets include mineral rights and exploration and evaluation costs, including geophysical, topographical,
geological and similar types of costs. Exploration and evaluation costs are capitalised if management concludes that future economic
benefits are likely to be realised and determines that economically viable extraction operation can be established as a result of exploration
activities and internal assessment of mineral resources.
According to IFRS 6 Exploration for and evaluation of mineral resources, the potential indicators of impairment include: management’s
plans to discontinue the exploration activities, lack of further substantial exploration expenditure planned, expiry of exploration licences in
the period or in the nearest future, or existence of other data indicating the expenditure capitalised is not recoverable. At the end of each
reporting period, management assesses whether such indicators exist for the exploration and evaluation assets capitalised, which
requires significant judgement.
As of 31 December 2017 total exploration and evaluation costs capitalised amount to US$176 million (2016: US$140 million) with the
most significant asset of US$60 million (2016: US$60 million) attributable to the Kyzyl project flanks and satellite deposit Bolshevik.
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The Group also has a significant interest in the Nezhda joint venture amounting to US$67 million (see Note 20) as noted above.
The completion of the purchase of an additional 7% share in the JV and exercise of the option over the remaining equity are subject to
approval by the Russian Federal Government’s Commission on Foreign Investments into Companies of Strategic Importance. The exercise
of the option is also subject to approval by the Russian Federal Antimonopoly Service. The Group has taken the judgement that it is likely
that these approvals will be provided, but is also confident that it will be able to enter into revised arrangements or take alternative mitigating
action if required to ensure that it can complete the acquisition of the Nezhda project. However, there remains a risk that the Group will
not be able to exercise the option, in which case the management will reassess the recoverability of the investment which could lead to
a material impairment charge.
Key sources of estimation uncertainty
The following are the sources of estimation uncertainty that carry the most significant risk of material effect on next year’s accounts,
being items where actual outcomes in the next 12 months could vary significantly from the estimates made in determining the reported
amount of an asset or liability.
Cash flow projections for impairment testing
Expected future cash flows used in discounted cash flow models are inherently uncertain and could materially change over time. They are
significantly affected by a number of factors including ore reserves, together with economic factors such as commodity prices, exchange
rates, discount rates and estimates of production costs and future capital expenditure.
• Ore reserves and mineral resources – Recoverable reserves and resources are based on the proven and probable reserves and resources
in existence. Reserves and resources are incorporated in projected cash flows based on ore reserve statements and exploration and
evaluation work undertaken by appropriately qualified persons (see below). Mineral resources, adjusted by certain conversion ratio,
are included where management has a high degree of confidence in their economic extraction, despite additional evaluation still being
required prior to meeting the required confidence to convert to ore reserves.
• Commodity prices – Commodity prices are based on latest internal forecasts, benchmarked against external sources of information.
Polymetal currently use a flat real long-term gold and silver price of US$1,200 per ounce (2016: US$1,200) and US$16 per ounce
(2016: US$16), respectively.
• Foreign exchange rates - Foreign exchange rates are based on latest internal forecasts, benchmarked with external sources of information
for relevant countries of operation. Management have analysed RUB/US$ rate movements for the year ended 31 December 2017. RUB/
US$ exchange rate is estimated at 60 RUB/US$ (2016: 60 RUB/US$).
• Discount rates – The Group used a post-tax real discount rate of 9.0% (2016: 9.0%). Cash flow projections used in fair value less costs
of disposal impairment models are discounted based on this rate.
• Operating costs, capital expenditure and other operating factors – Cost assumptions incorporate management experience and
expectations, as well as the nature and location of the operation and the risks associated there with. Underlying input cost assumptions
are consistent with related output price assumptions. Other operating factors, such as the timelines of granting licences and permits are
based on management’s best estimate of the outcome of uncertain future events at the balance sheet date.
Ore reserves
An ore reserve estimate is an estimate of the amount of product that can be economically and legally extracted from the Group’s properties.
Ore reserve estimates are used by the Group in the calculation of: depletion of mining assets using the units-of-production method;
impairment charges and in forecasting the timing of the payment of decommissioning and land restoration costs. Also, for the purpose of
impairment review and the assessment of the timing of the payment of decommissioning and land restoration costs, management 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.
In order to calculate ore reserves, estimates and assumptions are required about geological, technical and economic factors, including
quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity demand, commodity prices,
discount rates and exchange rates. Estimating the quantity and/or grade of ore reserves requires the size, shape and depth of ore bodies
to be determined by analysing geological data such as the logging and assaying of drill samples. This process may require complex and
difficult geological judgements and calculations to interpret the data.
Ore reserve estimates may change from period to period as additional geological data becomes available during the course of operations or
if there are changes in any of the aforementioned assumptions. 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;
• depletion charged in the consolidated income statement where such charges are determined by using the units-of-production method;
• provisions for decommissioning and land restoration costs where changes in estimated reserves affect expectations about the timing
of the payment of such costs;
• carrying value of deferred tax assets and liabilities where changes in estimated reserves affect the carrying value of the relevant
assets and liabilities; and
• contingent consideration liabilities where these are determined by the future production levels.
Ore reserves are subject to the annual re-estimation (please refer to the Reserves and Resources section of the Annual Report).
Based on the ore reserves estimate as of 1 January 2018, the depreciation charge for the year ended 31 December 2017 would decrease
by US$15 million.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY CONTINUED
Recoverability of deferred tax assets
Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred tax asset to be utilised (Note 16). There is an application of judgement in assessing the
amount, timing and probability of future taxable profits and repatriation of retained earnings. These factors affect the determination of the
appropriate rates of tax to apply and the recoverability of deferred tax assets. These judgements are influenced, inter alia, by factors such as
estimates of future production, commodity lines, operating costs, future capital expenditure and dividend policies. If actual results differ from
these estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be
negatively affected.
Deferred tax assets arising from tax losses carried forward recognised as of 31 December 2017 amount to US$126 million (2016:
US$105 million). Tax losses carried forward represent amounts available for offset against future taxable income generated by ZK Mayskoye
LLC (Russian Federation), JSC Varvarinskoye and Bakyrchik Mining LLC (Kazakhstan). Each legal entity within the Group represents a
separate tax-paying component for income tax purposes. The tax losses of one entity cannot be used to reduce taxable income of other
entities of the Group. Gross tax losses carried forward of US$448 million (2016: US$435 million), for which a deferred tax asset is
recognised in JSC Varvarinskoye and Bakyrchik Mining Venture LLC are available during the period up to 2026, with the most significant
portion expiring in 2025 (Note 16). The remaining gross tax losses have an indefinite life.
Recoverability of stockpiles and work in-process
The assessment of the recoverability of metal inventories requires judgement both in terms of calculating expected costs to process and
refine ore stock piles to produce concentrate or doré for sale, and in terms of estimating future prices to be realised on sale (Note 21).
The Group uses survey and assay techniques to estimate quantities of the ore stockpiled and ore stacked in heap leach pads, as well
as the recoverable metal in the this material and work in-process. The amount of the recoverable metals, that will be available for sale,
is determined based on technological recoveries, which are established for each deposit and extraction technology. Changes in these
estimates can result in a change in mine operating costs of future periods and carrying amounts of inventories.
During the year ended 31 December 2017 the Group provided for net realisable value of metal inventories in the amount of US$16 million
(year ended 31 December 2016: write-down of US$21 million).
The amount of inventories held at net realisable value at 31 December 2017 is US$60 million (31 December 2016: US$45 million).
The key assumptions used in determining the net realisable value of inventories at 31 December 2017 are consistent with those used
for goodwill impairment testing.
Valuation of contingent consideration payable
The Group has recorded contingent consideration liabilities of US$62 million as at 31 December 2017 (2016: $76 million) related to
various acquisitions made, as set out in Note 28 to the financial statements. Various estimates must be made when determining the
value of contingent consideration to be recognised at each balance sheet date. The assumptions made are consistent with those
made for impairment testing purposes (see above), and additional assumptions are included in Note 28. Significant changes in
assumptions could cause an increase, or reduction, in the amount of contingent consideration payable, with a resulting charge
or credit in the Group income statement.
4. ACQUISITIONS
(a) Year ended 31 December 2017
Primorskaya GGK LLC
In May 2017 Polymetal purchased a 100% interest in Primorskaya GGK LLC, a company holding several licences for the silver-gold
properties located in the Primorskiy region of Russia, from an unrelated party for a cash consideration of US$2 million.
The company does not meet the definition of a business pursuant to IFRS 3 and thus it was accounted for as an acquisition of a group
of assets. The Group has purchased mineral rights of US$2 million.
(b) Year ended 31 December 2016
Kapan
In March 2016 Polymetal entered into binding agreements with Dundee Precious Metals Inc (Dundee) for the acquisition of CJSC Dundee
Precious Metals Kapan (DPMK), the holding company for the Kapan Gold Mine (Kapan) in the Republic of Armenia.
On 28 April 2016 the Group acquired 100% of the shares of DPMK.
The asset comprises a fully mechanised underground mine and a conventional 750 Ktpa flotation concentrator and various infrastructure
facilities. The mine produces gold, copper, silver and zinc concentrates sold to international markets.
Kapan meets the definition of a business pursuant to IFRS 3 and thus was accounted for at fair value using the acquisition method.
Consideration transferred
The total consideration for the shares at completion comprised US$38 million consisting of US$14 million payable in cash (including post-
closing working capital adjustment amounting to US$5 million) and US$15 million paid through the issue of 1,481,785 new ordinary shares
of the Company. In addition, Dundee receives a 2% NSR (Net Smelter Return) royalty on the future production from the Kapan Gold Mine
capped at US$25 million.
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POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
The fair value of the 1,481,785 ordinary shares issued as part of the consideration paid for Kapan was determined based on spot price
as of acquisition date, being US$10.28, and amounts to US$15 million.
The net smelter return royalty described above meets the definition of contingent consideration. The fair value of the contingent
consideration was determined based on the life-of-mine model of the Kapan mine by discounting projected cash flows to the acquisition
date. The following metal price assumptions, consistent with the assumptions adopted for the long-term planning at the time of acquisition,
were used for the fair value calculation: Au – US$1,250/oz, Ag – US$17/oz, Cu – US$4,500/tonne, Zinc – US$1,800/tonne, real post-tax
discount rate of 9.04%. At the acquisition date, the estimated fair value of the contingent consideration amounted to US$9 million.
Assets acquired and liabilities recognised at the date of acquisition
As of date of finalisation of the interim consolidated financial statements for the period ended 30 June 2016 the fair value of the assets
acquired and liabilities recognised at the date of acquisition was provisionally accounted for, as well as the amount of the post-closing
working capital adjustment. A post-closing working capital adjustment of US$5 million was outstanding as of 31 December 2016 and
was included in account payable. The amount was paid during the year ended 31 December 2017.
The amounts recognised in respect of the identifiable assets acquired and liabilities assumed and its reconciliation to the provisionally
accounting are set out in the table below:
Assets acquired and liabilities recognised at the date of acquisition
Cash and cash equivalents
Mineral rights
Property, plant and equipment
Inventories
Account receivable
Accounts payable and accrued liabilities
Taxes payable
Environmental obligations
Deferred taxes
Net assets acquired
Consideration transferred
Cash
Fair value of shares issued
Contingent consideration
Total consideration
Net cash outflow on acquisition
Cash consideration payable as of 31 December 2016
Provisional
accounting
US$m
Fair value
adjustments
US$m
Final
accounting
US$m
1
17
4
11
12
(8)
(12)
(1)
9
33
9
15
9
33
8
–
–
(17)
17
5
–
–
–
–
–
5
5
–
–
5
–
–
1
–
21
16
12
(8)
(12)
(1)
9
38
14
15
9
38
8
5
No significant financial assets were acquired in business combination. The fair value of the accounts receivable approximates to its
carrying value.
Komarovskoye
On 4 April 2016 Polymetal entered into a binding agreement with Kazzinc LTD, a subsidiary of Glencore International plc, for the acquisition
of Orion Minerals LLC, the holding company for the Komarovskoye Gold Deposit (Komarovskoye) in the Republic of Kazakhstan.
The asset comprises an active open pit mine and a 500 Ktpa heap leach facility with grid power available on site. Polymetal aims to mine,
deliver by rail and process at Varvara up to 2 Mtpa of ore with potential to increase Varvara’s annual production at lower cash costs.
The acquisition of the Komarovskoye was completed on 1 August 2016, following receipt of all required regulatory approvals.
Management considers that the control over the Komarovskoye was obtained on the date of the deal completion.
Komarovskoye meets the definition of a business pursuant to IFRS 3 thus it was accounted for at fair value using the acquisition method.
The total consideration for Komarovskoye was US$100 million payable in cash. In addition, a deferred consideration contingent upon future
production levels and gold price performance, will be paid to Kazzinc LTD. The royalty is calculated on a quarterly basis, based on contained
gold in ore mined per relevant quarter and is payable at gold prices above US$1,250 per ounce. The royalty is capped at a total
consideration of US$80 million.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. ACQUISITIONS CONTINUED
Consideration transferred
Deferred consideration described above meets definition of the contingent consideration. The fair value of the contingent consideration
was determined based on the life-of-mine model of the Komarovskoye mine and calculated using Monte Carlo modelling. Projected cash
flows were discounted to the acquisition date at a discount rate of 9.04%. Gold price volatility was assessed at 18.08%, average gold
price for one quarter to the valuation date was US$1,291/ounce. As at acquisition date the estimated contingent consideration amounts
to US$20 million.
Assets acquired and liabilities recognised at the date of acquisition
As at 31 December 2016, purchase price allocation for the acquisition of Komarovskoye was not completed and mineral rights and
environmental obligations were accounted for on a provisional basis. The Group completed the purchase price allocation review during
the year ended 31 December 2017 and made no adjustments to the provisional calculation.
The management believes that this business acquisition does not give rise to goodwill and excess of consideration over identifiable net asset
assets of the acquiree should be fully attributed the mineral rights. The amount recognised in respect of the identifiable assets acquired and
liabilities assumed are set out in the table below:
Assets acquired and liabilities recognised at the date of acquisition
Cash and cash equivalents
Property, plant & equipment
Inventories
Accounts receivable
Accounts payable and accrued liabilities
Environmental obligations
Deferred income taxes
Other liablities
Net assets acquired
Consideration transferred
Cash
Contingent consideration
Total consideration
Net cash out flow on acquisition
US$m
1
140
7
1
(2)
(1)
(25)
(1)
120
100
20
120
99
No significant financial assets were acquired in business combination.
No significant acquisition-related costs were incurred.
Saum Mining Company LLC
On 2 December 2016 Polymetal International plc acquired an 80% stake in Saum Mining Company LLC, a licence holder for the Saum
polymetallic deposit (Saum). Polymetal issued 1,120,690 new Company shares (Consideration shares), representing 0.26% of Polymetal’s
total increased share capital in connection with the acquisition of an 80% stake in Saum from an unrelated party. The total transaction value
is approximately US$10.7 million.
The Saum licence covers an area of 34.2 km2 in Russia’s Sverdlovsk region in the Ural Mountains and is located and approximately 240 km
from Polymetal’s Voro processing plant. Polymetal plans to prepare an ore reserves estimate in Q4 2017. Further drilling is planned on the
property in 2017 and 2018.
Saum does not meet the definition of a business pursuant to IFRS 3, as it represents acquisition of mining license through a non-operating
corporate entity, and thus it is accounted for as an acquisition of a group of assets. The Group purchased mineral rights of US$10 million
and other current assets of US$1 million.
5. SEGMENT INFORMATION
During the year ended 31 December 2017 management has reviewed the segmental presentation of financial information it requires to
assess performance and allocate resources. It now considers a more geographic-focused reporting format based on the location of
operating activities to be more meaningful from a management and forecasting perspective, as well as aligned to the management structure,
reporting and practices.
The Group has identified five reportable segments:
• Magadan (Omolon Gold Mining Company LLC, Magadan Silver JSC, Mayskoye Gold Mining Company LLC);
• Ural (Gold of Northern Urals CJSC);
• Khabarovsk (Albazino Resources Ltd, Amur Hydrometallurgical Plant LLC, Okhotskaya Mining and Exploration Company LLC,
Svetloye LLC);
• Kazakhstan (Varvarinskoye JSC, Komarovskoye Mining Company LLC, Bakyrchik Mining Venture LLC, Inter Gold Capital LLC); and
• Armenia (Kapan MPC CJSC, Lichkvaz CJSC).
Reportable segments are determined based on the Group’s internal management reports, which are separated based on the Group’s
geographical structure. Minor companies and activities (management, exploration, purchasing and other companies) which do not meet the
reportable segment criteria are disclosed within corporate and other segment. Each segment is engaged in gold, silver or copper mining and
related activities, including exploration, extraction, processing and reclamation. The Group’s segments are based in the Russian Federation,
Kazakhstan and Armenia.
The measure which management and the Chief Operating Decision Maker (the CODM) use to evaluate the performance of the Group is
segment Adjusted EBITDA, which is defined as profit for the period adjusted for depreciation and amortisation, write-downs and reversals of
inventory to net realisable value, share-based compensation expenses, rehabilitation expenses, bad debt allowance, gains or losses arising
on acquisition or disposal of subsidiaries, foreign exchange gains or losses, changes in the fair value of contingent consideration, finance
income, finance costs, income tax expenses and tax exposure accrued within other operating expenses. The accounting policies of the
reportable segments are consistent with those of the Group’s accounting policies under IFRS.
Revenue shown as corporate and other comprises, principally, intersegment revenue relating to the supply of inventories, spare parts and
fixed assets, and rendering management services to the Group’s production entities. Intersegment revenue is recognised based on costs
incurred plus a fixed margin basis. External revenue shown within corporate and other represents revenue from services provided to third
parties by the Group’s non-mining subsidiaries.
Business segment current assets and liabilities, other than current inventory, are not reviewed by the CODM and therefore are not
disclosed in these consolidated financial statements. The segment adjusted EBITDA reconciles to the profit before income tax as
shown on the next page.
140
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. SEGMENT INFORMATION CONTINUED
The segment adjusted EBITDA reconciles to the profit before income tax as follows:
Magadan
Khabarovsk
Ural
Kazakhstan
Armenia
Total
reportable
segments
Corporate
and
other
Intersegment
operations
and balances
Total
Magadan
Khabarovsk
Ural
Kazakhstan
Armenia
Total
reportable
segments
Corporate
and
other
Intersegment
operations
and balances
Total
Period ended 31 December 2017 (US$m)
Revenue from external customers
Intersegment revenue
Cost of sales, excluding depreciation, depletion
and write-down of inventory to net realisable value
Cost of sales
Depreciation included in cost of sales
Write-down of metal inventory to net realisable value
Write-down of non-metal inventory to net realisable value
General, administrative and selling expenses, excluding
depreciation, amortisation and share based compensation
General, administrative and selling expenses
Intercompany management services
Depreciation included in SGA
Share based compensation
Other operating expenses excluding additional tax charges
Other operating expenses
Additional mining taxes and VAT exposures, penalties and
accrued interest
Share of profit of associates and joint ventures
Adjusted EBITDA
Depreciation expense
Rehabilitation expenses
Write-down of non-metal inventory to net realisable value
Write-down of metal inventory to net realisable value
Share-based compensation
Additional mining taxes and VAT exposures,
penalties and accrued interest
Operating profit / (loss)
Net foreign exchange gains
Change in fair value of contingent consideration liability
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the financial period
Current metal inventories
Current non-metal inventories
Non-current segment assets:
Property, plant and equipment, net
Goodwill
Non-current inventory
Investments in associates
Total segment assets
Additions to non-current assets:
Property, plant and equipment
Acquisitions of subsidiaries
810
–
437
540
(94)
(12)
3
29
53
(23)
(1)
–
24
21
3
–
320
95
–
(3)
12
–
(3)
219
130
99
469
18
86
–
802
–
106
–
630
14
301
371
(65)
(3)
(2)
18
35
(16)
(1)
–
10
11
(1)
–
315
66
–
2
3
–
1
243
125
48
443
–
13
–
629
–
114
–
155
1
43
56
(13)
–
–
5
12
(7)
–
–
11
9
2
–
97
13
–
–
–
–
(2)
86
42
6
46
–
2
–
96
–
9
–
154
6
83
114
(29)
(1)
(1)
13
17
(3)
(1)
–
9
9
–
–
55
30
–
1
1
–
–
23
30
21
892
–
23
–
966
–
165
–
66
–
39
51
(9)
–
(3)
5
5
–
–
–
2
(4)
6
–
20
9
–
3
–
–
(6)
14
6
4
66
–
1
–
77
–
24
–
1,815
21
903
1,132
(210)
(16)
(3)
70
122
(49)
(3)
–
56
46
10
–
807
213
–
3
16
–
(10)
585
–
218
141
141
–
–
–
89
102
(2)
(1)
(10)
6
8
(2)
3
(15)
1
–
–
–
10
2
333
178
–
17
1,916
138
18
125
–
2,570
–
418
–
–
–
96
251
–
13
2
–
1,815
(239)
–
(167)
(167)
–
–
–
(15)
(66)
51
–
–
(10)
(10)
–
–
(47)
–
–
–
–
–
–
(5)
(9)
–
–
(2)
–
877
1,106
(210)
(16)
(3)
144
158
–
(4)
(10)
52
44
8
3
745
214
–
3
16
10
(8)
510
(10)
2
4
(63)
443
(89)
354
328
186
2,054
18
123
96
(16)
2,805
–
–
–
–
431
2
(28)
(47)
Period ended 31 December 2016 (US$m)
Revenue from external customers
Intersegment revenue
Cost of sales, excluding depreciation, depletion and
write-down of inventory to net realisable value
Cost of sales
Write-down of metal inventory to net realisable value
Depreciation included in cost of sales
Write-down of non-metal inventory to net realisable value
Rehabilitation expenses
General, administrative and selling expenses, excluding
depreciation, amortisation and share based compensation
General, administrative and selling expenses
Intercompany management services
Depreciation included in SGA
Share based compensation
Other operating expenses excluding additional tax charges
Other operating expenses
Bad debt allowance
Additional mining taxes and VAT exposures, penalties
and accrued interest
Share of profit of associates and joint ventures
Adjusted EBITDA
Depreciation expense
Rehabilitation expenses
Write-down of non-metal inventory to net realisable value
Write-down of metal inventory to net realisable value
Share-based compensation
Bad debt allowance
Additional mining taxes and VAT exposures,
penalties and accrued interest
Operating profit / (loss)
Net foreign exchange gains
Change in fair value of contingent consideration liability
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the financial period
Current metal inventories
Current non-metal inventories
Non-current segment assets:
Property, plant and equipment, net
Goodwill
Non-current inventory
Investments in associates
Total segment assets
Additions to non-current assets:
Property, plant and equipment
Acquisitions of subsidiaries
823
–
362
461
(16)
(79)
(3)
(1)
23
41
(18)
–
–
26
11
–
15
–
412
79
1
3
16
–
–
(15)
328
130
86
436
17
94
–
763
78
–
473
6
203
258
(5)
(47)
(3)
–
14
27
(12)
(1)
–
6
6
–
–
–
256
48
–
3
5
–
–
–
157
–
36
47
–
(11)
–
–
4
10
(6)
–
–
4
5
–
(1)
–
113
11
–
–
–
–
–
1
101
–
61
72
–
(11)
–
–
9
11
(1)
(1)
–
3
3
–
–
–
28
12
–
–
–
–
–
–
200
101
16
105
50
377
–
13
–
545
73
–
38
5
49
–
2
–
94
7
–
43
16
773
–
4
–
836
108
140
29
–
19
23
–
(4)
–
–
3
3
–
–
–
1
3
–
(2)
–
6
4
–
–
–
–
–
2
–
6
7
50
–
1
–
64
13
21
1,583
6
681
861
(21)
(152)
(6)
(1)
53
92
(37)
(2)
–
40
28
–
12
–
815
154
1
6
21
–
–
(12)
645
322
164
1,685
17
114
–
2,302
279
161
–
196
134
134
–
–
–
–
69
79
(2)
(1)
(7)
10
10
–
–
–
–
23
144
–
–
25
192
9
10
–
1,583
(202)
–
(149)
(149)
–
–
–
–
(12)
(51)
39
–
–
(2)
(2)
–
–
–
666
846
(21)
(152)
(6)
(1)
110
120
–
(3)
(7)
48
36
–
12
–
759
155
1
6
21
7
–
(12)
581
65
(22)
3
(63)
564
(169)
395
315
178
(7)
(9)
(24)
1,805
–
(1)
–
17
113
25
(41)
2,453
–
–
288
171
(17)
(39)
1
–
–
–
7
–
–
–
–
–
–
–
–
–
(25)
(39)
142
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6. REVENUE
Revenue analysed by geographical regions of customers is presented below:
Sales within the Russian Federation
Sales to Kazakhstan
Sales to Europe
Sales to East Asia
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
1,090
301
224
200
1,815
899
295
205
184
1,583
Included in revenues for the year ended 31 December 2017 are revenues which arose from sales of the Group’s largest customers,
those share in revenue exceeds 10% of the total, amounting to US$610 million, US$200 million, US$167 million and US$136 million,
respectively (2016: US$416 million, US$281 million and US$206 million, respectively). Presented below is an analysis of revenue from gold,
silver, zinc and copper sales:
Year ended 31 December 2017
Year ended 31 December 2016
Thousand
ounces/
tonnes
shipped
1,105
26,888
2,717
5,466
Thousand
ounces/
tonnes
payable
Average price
(US Dollar per
troy ounce/
tonne payable)
1,090
26,469
2,573
4,679
1,247
16.1
6,607
2,779
US$m
1,359
426
17
13
1,815
Thousand
ounces/
tonnes
(unaudited)
shipped
Thousand
ounces/
tonnes
(unaudited)
payable
882
880
31,099
30,666
1,689
3,246
1,634
2,800
Average price
(US Dollar
per troy
ounce/tonne
payable)
(unaudited)
1,216
16.3
4,896
1,786
US$m
1,070
500
8
5
1,583
Gold (thousand ounces)
Silver (thousand ounces)
Copper (tonnes)
Zinc (tonnes)
Total
7. COST OF SALES
Cash operating costs
On-mine costs (Note 8)
Smelting costs (Note 9)
Purchase of ore and concentrates from third parties
Purchase of ore from related parties (Note 32)
Mining tax
Total cash operating costs
Depreciation and depletion of operating assets (Note 10)
Rehabilitation expenses
Total costs of production
Increase in metal inventories
Write-down of metal inventories to net realisable value (Note 21)
Write-down of non-metal inventories to net realisable value (Note 21)
Idle capacities and abnormal production costs
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
414
316
54
38
88
910
193
–
1,103
(26)
16
3
10
1,106
320
259
27
11
82
699
162
1
862
(51)
21
6
8
846
Mining tax includes royalties payable in Russian Federation, Kazakhstan and Armenia. Mining tax in Russian Federation and Kazakhstan is
calculated based on the value of the precious metals extracted in the period. This value is usually determined based on the realised selling
price of precious metals or, in case if there were no sales during the period, cost of production of metals extracted (Russian Federation) or the
average market price (Kazakhstan) during the period. The royalty payable in Armenia is calculated as a percentage of actual sales during the
reporting period.
Mining tax in respect of the metal inventories produced or sold during the year is recognised within cost of sales, while the additional mining tax
accruals in respect of various disputes with tax authorities are recognised within other expenses (see Note 12).
Idle capacities and abnormal production costs were expensed as incurred and relate to idle capacities when processing plants are stopped for
general maintenance.
144
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
8. ON-MINE COSTS
Services
Labour
Consumables and spare parts
Other expenses
Total (Note 7)
9. SMELTING COSTS
Consumables and spare parts
Services
Labour
Other expenses
Total (Note 7)
10. DEPLETION AND DEPRECIATION OF OPERATING ASSETS
On-mine
Smelting
Total (Note 7)
Year ended
31 December
2017
US$m
31 December
2016
US$m
192
118
101
3
414
139
97
79
5
320
Year ended
31 December
2017
US$m
31 December
2016
US$m
132
116
65
3
316
114
93
50
2
259
Year ended
31 December
2017
US$m
31 December
2016
US$m
137
56
193
117
45
162
Depreciation of operating assets excludes depreciation relating to non-operating assets (included in general, administrative and selling
expenses) and depreciation related to assets employed in development projects where the charge is capitalised. Depreciation expense,
which is excluded from the Group’s calculation of Adjusted EBITDA (see Note 5), also excludes amounts absorbed into unsold metal
inventory balances.
11. GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
Labour
Services
Share based compensation
Depreciation
Other
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
116
11
10
4
17
158
87
10
7
3
13
120
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12. OTHER OPERATING EXPENSES, NET
13. EMPLOYEE COSTS
Exploration expenses
Social payments
Provision for investment in Special Economic Zone
Taxes, other than income tax
Housing and communal services
Loss on disposal of property, plant and equipment
Change in estimate of environmental obligations
Additional mining taxes and VAT exposures, penalties and accrued interest, net
Other expenses
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
18
15
12
11
4
1
(4)
(8)
(5)
44
10
10
14
11
4
1
(5)
(12)
3
36
From 1 January 2017 Omolon Gold Mining Company LLC and Magadan Silver JSC are entitled to the decreased statutory income tax rate
of 17% (2016: 18%) for the operations held in the Special Economic Zone of the Russian Far East, as well as decreased mining tax rate
(paying at 60% of the standard mining tax rates). In return for obtaining this tax relief the members of the regional free economic zone are
obliged to invest 50% of their tax savings each year in the Special Economic Zone Development Programme, amounting to US$12 million
in the reporting year (2016: US$14 million).
Additional mining taxes, VAT, penalties and accrued interest have been accrued in respect of various disputes with the Russian and
Armenian tax authorities.
Total provision for additional property taxes, mining taxes and VAT exposures, penalties and accrued interest as of 31 December 2017 is
US$7 million (31 December 2016: US$14 million). During the year ended 31 December 2017 the Group has paid US$6 million related to
royalty provisions identified as of 31 December 2016 and released US$6 million of accrued penalties and interest due to settlement with tax
authorities at Kapan. There were no other individually significant movement in tax provisions.
During the year ended 31 December 2016 following the favourable court decisions the Group has recognised the reversal of the previously
recognised and paid additional mining tax charge at Magadan Silver JSC amounting to US$14 million. There were no other individually
significant movement in tax provisions during the year ended 31 December 2016.
Exploration expenses include write downs of US$2 million (2016: US$1 million) recognised within Exploration and Development assets
(Note 18). Operating cash flow spent on exploration activities amounts to US$16 million (2016: US$11 million).
Wages and salaries
Social security costs
Share-based compensation
Total payroll costs
Reconciliation:
(Less): employee costs capitalised
Add/(Less): employee costs absorbed into unsold metal inventory balances
Employee costs included in operating costs
Year ended
31 December
2017
US$m
31 December
2016
US$m
275
78
10
363
(40)
12
335
215
51
7
273
(26)
(5)
242
The weighted average number of employees during the year ended 31 December 2017 and year ended 31 December 2016 was:
Magadan
Khabarovsk
Kazakhstan
Armenia
Ural
Corporate and other
Total
Compensation of key management personnel is disclosed within Note 32.
14. AUDITOR’S REMUNERATION
Fees payable to the auditor and their associates for the audit of the Company’s Annual Report
United Kingdom
Overseas
Audit of the Company’s subsidiaries
Total audit fees
Audit-related assurance services – half year review
Total audit and half-year review fees
Other services
Total non-audit fees
Total fees
Non-audit fees as % of audit and half-year review fees
Year ended
31 December
2017
Number
31 December
2016
Number
3,554
2,529
1,634
1,007
810
1,419
10,953
3,564
2,619
1,517
770
878
1,465
10,813
Year ended
31 December
2017
US$m
31 December
2016
US$m
0.35
0.76
0.05
1.16
0.43
1.59
0.01
0.01
1.60
1%
0.30
0.75
–
1.05
0.39
1.44
0.03
0.03
1.47
2%
146
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCE COSTS
Interest expense on borrowings
Unwinding of discount on environmental obligations
Unwinding of discount on contingent considerations
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
57
3
3
63
58
4
1
63
Interest expense on borrowings excludes borrowing costs capitalised in the cost of qualifying assets of US$8 million and US$5 million
during the years ended 31 December 2017 and 2016, respectively. These amounts were calculated based on the Group’s general
borrowing pool and by applying an effective interest rate of 3.96% and 4.33%, respectively, to cumulative expenditure on such assets.
16. INCOME TAX
The amount of income tax expense for the years ended 31 December 2017 and 31 December 2016 recognised in profit and loss is
as follows:
Current income taxes
Deferred income taxes
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
111
(22)
89
139
30
169
A reconciliation between the reported amounts of income tax expense attributable to income before income tax is as follows:
Profit before income tax
Theoretical income tax expense at the tax rate of 20%
Effect of Special Economic Zone and Regional Investment project decreased tax rates
Effect of different tax rates of subsidiaries operating in other jurisdictions
Current year losses not recognized and losses previously recognised written-off
Non-deductible interest expense
Effect of dissolution of the subsidiary
Other non-taxable income and non-deductible expenses
Total income tax expense
Year ended
31 December
2017
US$m
31 December
2016
US$m
443
89
(25)
5
3
5
–
12
89
564
113
(10)
6
7
14
25
14
169
The actual tax expense differs from the amount which would have been determined by applying the statutory rate of 20% for the Russian
Federation, Kazakhstan and Armenia to profit before income tax as a result of the application of relevant jurisdictional tax regulations,
which disallow certain deductions which are included in the determination of accounting profit. These deductions include share-based
payment expenses, social related expenditures and other non-production costs, certain general and administrative expenses, financing
expenses, foreign exchange related and other costs.
As from 1 January 2017 Omolon Gold Mining Company LLC and Magadan Silver JSC are entitled to the decreased statutory income tax rate
of 17% for the operations held in the Special Economic Zone of the Russian Far East (2016: 18%), the rate of 17% was used in calculation of
income tax provision and deferred tax positions for those entities. Since 1 January 2017 Svetloye LLC has received tax relief as a Regional
Investment Project and is entitled to the statutory income tax rate of 0% up to 2021.
In the normal course of business, the Group is subject to examination by the tax authorities throughout the Russian Federation, Kazakhstan
and Armenia. Of the large operating companies of the Group, the tax authorities have audited Okhotskaya Mining and Exploration Company
LLC up to 2014, Omolon Gold Mining Company LLC up to 2013, Gold of Northern Urals CJSC and Magadan Silver JSC up to 2012,
Mayskoye Gold Mining Company LLC up to 2010, and Varvarinskoye JSC for the period up to 2010. According to Russian, Kazakhstan
and Armenian tax legislation, previously completed audits do not fully preclude subsequent claims relating to the audited period.
Tax exposures recognised in income tax
During the year ended 31 December 2017 and the year ended 31 December 2016 no individual significant exposures were indentified as
probable and provided for. Management has identified a total exposure (covering taxes and related interest and penalties) of approximately
US$5 million in respect of uncertain tax positions (31 December 2016: US$4 million) which relate to income tax.
Income tax amounts included in other comprehensive income
An analysis of tax by individual item presented in the Consolidates statement of comprehensive income is presented below:
Net foreign exchange gains/(losses) on net investment in foreign operation
Current tax expense
Deferred tax expense
Total income tax recognised in other comprehensive income
Year ended
31 December
2017
US$m
31 December
2016
US$m
(2)
(3)
(5)
(6)
(1)
(7)
Current and deferred tax assets recognised within other comprehensive income relates to the tax losses originated by foreign currency
exchange losses, allowable for tax purposes and generated by monetary items that forms part of the intragroup net investment in the
foreign operation. These foreign currency exchange losses are recognised in the consolidated financial statements within foreign currency
translation reserve.
Deferred taxation
Deferred taxation is attributable to the temporary differences that exist between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes.
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the reporting period.
Environmental
obligation
US$m
Inventories
US$m
Property,
plant, and
equipment
and other non-
current assets
US$m
Trade
and other
payables
US$m
Tax losses
US$m
Long-term
loans and
payables
US$m
Intercompany
loans
US$m
Other
current
assets
US$m
At 1 January 2016
Charge to income
statement
Acquisition (Note 4)
Recognised in other
comprehesive income
Exchange differences
At 31 December 2016
Charge to income
statement
Recognised in other
comprehesive income
Exchange differences
At 31 December 2017
6
(1)
–
–
2
7
–
–
–
7
(14)
(127)
6
1
–
(3)
(10)
12
–
(1)
1
7
(21)
–
(12)
(153)
(3)
–
(3)
(159)
6
1
2
–
1
10
(2)
–
–
8
130
(37)
2
1
9
105
18
–
3
126
2
–
–
–
–
2
(1)
–
–
1
–
(6)
–
–
–
(6)
(1)
3
–
(4)
4
–
–
–
1
5
(1)
–
–
4
Total
US$m
7
(30)
(16)
1
(2)
(40)
22
3
(1)
(16)
148
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 149
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
16. INCOME TAX CONTINUED
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following analysis shows deferred
tax balances presented for financial reporting purposes:
17. DIVIDENDS
Dividends recognised during the years ended 31 December 2017 and 31 December 2016 are detailed in the below:
Deferred tax liabilities
Deferred tax assets
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
(77)
61
(16)
(78)
38
(40)
The Group believes that recoverability of the recognised deferred tax asset (DTA) of US$126 million at 31 December 2017, which is related to
the tax losses carried forward, is more likely than not based upon expectations of future taxable income in the Russian Federation and
Kazakhstan and available tax planning strategies.
Effective from 1 January 2017 there are changes introduced to the Russian Federation tax law regarding loss carryforwards. Loss
carryforwards will be limited to 50% of taxable profit in tax years 2017 through 2020. From 2021 the limitation will expire and it will be
possible to fully utilise loss carryforwards against the corporate tax base in a given year. In addition to the above, the 10-year carryforward
period for losses is eliminated, meaning that losses incurred from 2007 can be carried forward for an indefinite period until fully utilised.
Losses incurred in certain taxable entities in recent years have created a history of losses as of 31 December 2017. The Group has
concluded that there is sufficient evidence to overcome the recent history of losses based on forecasts of sufficient taxable income
in the carry-forward period.
Tax losses carried forward represent amounts available for offset against future taxable income generated by Mayskoye Gold Mining
Company LLC, Varvarinskoye JSC and Bakyrchik Mining Venture LLC. Each legal entity within the Group represents a separate tax-paying
component for income tax purposes. The tax losses of one entity cannot be used to reduce taxable income of other entities of the Group.
Tax losses carried forward of US$448 million (2016: US$435 million), related to DTA recognised in Varvarinskoye JSC and Bakyrchik Mining
Venture LLC are available during the period up to 2026, with the most significant portion expiring in 2025.
The Group’s estimate of future taxable income is based on established proven and probable reserves which can be economically
developed. The related detailed mine plans and forecasts provide sufficient supporting evidence that the Group will generate taxable
earnings to be able to fully realise its net DTA even under various stressed scenarios. The amount of the DTA considered realisable,
however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced due to delays
in production start dates, decreases in ore reserve estimates, increases in environmental obligations, or reductions in precious metal prices.
No deferred tax asset has been recognised in respect of US$90 million (2016: US$96 million) as it is not considered probable that there
will be future taxable profits against which the losses can be utilised. No deferred tax was recognised in relation to Svetloye tax losses,
accumulated by 1 January 2016, were the entity has received tax relief as Regional Investment Project and is entitled to the statutory
income tax rate of 0% up to 2021, thus will not be able to utilise accumulated losses. Included in unrecognised tax losses are losses of
US$30 million that mainly expire in 2025. Other losses may be carried forward indefinitely in accordance with enacted changes to
Russian Federation legislation described above.
The deferred tax liabilities for taxes that would be payable on the unremitted earnings of certain of the Group subsidiaries have not been
recognised as the Group has determined that the undistributed profit of its subsidiaries will not be distributed in the foreseeable future.
The temporary differences associated with investments in subsidiaries, for which deferred tax liabilities have not been recognised,
amount to US$2,737 million (2016: US$2,147 million).
Final dividend 2015
Interim dividend 2016
Special dividend 2016
Final dividend 2016
Interim dividend 2017
Final dividend 2017
Total dividends for the year ended 31 December 2016
Total dividends for the year ended 31 December 2017
18. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance at 31 December 2015
Additions
Transfers
Change in decommissioning liabilities
Acquisitions (Note 4)
Disposals and write-offs including fully depleted mines
Translation to presentation currency
Balance at 31 December 2016
Additions
Transfers
Change in decommissioning liabilities
Acquisitions (Note 4)
Disposals and write-offs including fully depleted mines
Translation to presentation currency
Balance at 31 December 2017
Accumulated depreciation, amortisation
Balance at 31 December 2015
Charge for the period
Disposals and write-offs including fully depleted mines
Translation to presentation currency
Balance at 31 December 2016
Charge for the period
Disposals and write-offs including fully depleted mines
Translation to presentation currency
Balance at 31 December 2017
Net book value
31 December 2016
31 December 2017
Cents
per share US$m
13
9
15
18
14
30
56
38
64
78
60
129
Dividents
Deducted from
the equity
during the
period
Proposed
in relation
to the
period
May 2016
September 2016
December 2016
March 2017
September 2017
NA
158
138
2015
2016
2016
2016
2017
2017
180
189
Paid in
May 2016
September 2016
December 2016
May 2017
September 2017
Development
assets
US$m
Exploration
assets
US$m
Mining
assets
US$m
Non-mining
assets
US$m
Capital
construction
in-progress
US$m
NA
158
138
Total
US$m
1,938
288
–
(3)
171
(27)
302
2,669
431
–
3
2
(36)
97
104
73
(43)
–
–
(1)
17
150
174
(55)
3
–
(1)
5
276
3,166
–
–
–
–
–
–
–
–
–
150
276
(578)
(187)
19
(118)
(864)
(232)
28
(44)
(1,112)
1,805
2,054
518
39
(28)
–
–
–
35
564
77
4
–
–
–
10
655
–
–
–
–
–
–
–
–
–
98
26
–
–
10
(1)
7
140
35
(29)
–
2
(2)
4
1,174
143
73
(3)
152
(23)
234
1,750
141
89
–
–
(32)
76
150
2,024
–
–
–
–
–
–
–
–
–
(560)
(182)
18
(115)
(839)
(227)
28
(43)
(1,081)
911
943
44
7
(2)
–
9
(2)
9
65
4
(9)
–
–
(1)
2
61
(18)
(5)
1
(3)
(25)
(5)
–
(1)
(31)
40
30
564
655
140
150
150
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 151
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18. PROPERTY, PLANT AND EQUIPMENT CONTINUED
Mining assets, exploration and development assets at 31 December 2017 included mineral rights with net book value which amounted to
US$735 million (31 December 2016: US$756 million) and capitalised stripping costs with net book value of US$50 million (31 December
2016: US$32 million). Mineral rights of the Group comprise assets acquired upon acquisition of subsidiaries and asset acquisitions.
No property, plant and equipment was pledged as collateral at 31 December 2017 or at 31 December 2016.
19. GOODWILL
Cost and accumulated impairment losses
At 1 January
Translation effect
At 31 December
Goodwill has been allocated for impairment testing purposes to the following cash-generating units:
Mayskoye
Dukat
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
17
1
18
14
3
17
Year ended
31 December
2017
US$m
31 December
2016
US$m
13
5
18
12
5
17
The carrying amount of goodwill is reviewed annually to determine whether it is in excess of its recoverable amount. The recoverable amount
of the cash-generating unit is determined based on a fair value less costs to sell calculation. Fair value is based on the application of the
Discounted Cash Flow Method (DCF) using post-tax cash flows. The DCF method is attributable to the development of proved and
probable reserves.
The DCF method used is based on proved and probable reserves and uses the following key assumptions:
• production volumes;
• commodity prices;
• proved and probable reserves;
• production costs;
• Rouble exchange rates; and
• discount rates.
Recoverable reserves and resources are based on the proven and probable reserves and resources in existence at the end of the year.
Estimated production volumes are based on detailed life-of-mine plans and take into account development plans for the mines approved
by management as part of the long-term planning process.
The key assumptions used as at 31 December 2017 by the Group were as follows:
Commodity prices
Commodity prices are based on latest internal forecasts, benchmarked against external sources of information. In the impairment tests
performed, the flat real long-term gold and silver of US$1,200 per ounce (2016: US$1,200), US$16 per ounce (2016: US$16), respectively.
Discount rate
The Group used a post-tax real discount rate of 9.0% (2016: 9.0%).
Production costs
Production costs are based on management’s best estimates over the life of the mine, and reflect past experience.
Rouble exchange rates
Management have analysed RUB/US$ rate movements for the year ended 31 December 2017. For the purposes of the impairment test,
RUB/US$ exchange rate is estimated at 60 RUB/US$ (2016: 60 RUB/US$).
Sensitivity analysis
For Dukat and Mayskoye management has performed an analysis as to whether a reasonably possible adverse change to any of the key
assumptions would lead to impairment.
The following scenarios were considered as reasonably possible and were used for this sensitivity analysis:
• 10% simultaneous decrease in gold and silver prices over the life of mine;
• 10% decrease in Rouble exchange rates;
• 10% increase in operating expenses over the life-of-mine; and
• 0.5% increase in the discount rate applied.
Each of the sensitivities above has been determined by assuming that the relevant key assumption moves in isolation, and without
regard to potential mine plan changes and other management decisions which would be taken to respond to adverse changes in existing
management projections. An adverse change in a key assumption described above would not cause the aggregate carrying amount to
exceed the aggregate recoverable amount of the cash-generating units, except for Mayskoye CGU, where a 10% decrease in gold and
silver prices would cause the carrying amount to exceed the recoverable amount by US$41 million.
20. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Interests in associates and joint ventures
JSC South-Verkhoyansk Mining Company (Nezhda)
GRK Amikan
Prognoz Serebro LLC
Proeks LLC
Aktogai Mys LLC
Total
Loans forming part of net investment in joint ventures
JSC South-Verkhoyansk Mining Company (Nezhda)
Prognoz Serebro LLC
Total
Total investments in associates and joint ventures
31 December 2017
31 December 2016
Voting
power
%
17.66
42.65
5
30
50
Carrying
value
US$m
28
7
5
2
2
44
39
13
52
96
Voting
power
%
17.66
42.65
NA
24.9
25
Carrying
value
US$m
21
2
–
2
–
25
–
–
–
25
JSC South-Verkhoyansk Mining Company
In December 2015 Polymetal International plc entered into a joint arrangement, under which Polymetal participates in advancing the
development of the Nezhdaninskoye gold deposit (Nezhda) in Yakutia, Russia. On 19 January 2016 Polymetal obtained a 15.3% interest
in the joint venture entity holding the 100% of the Company for the total cash consideration of US$18 million. It was determined that the
arrangement meets definition of a joint arrangement as per IFRS 11 Joint Arrangements, as joint control of two investors was established.
As the arrangement is structured thorough the separate vehicle and the investors have rights for their share in net assets of the joint
arrangement, it was concluded that joint arrangement meets definition of the joint venture and should be accounted for using equity
method of accounting.
In November 2016 Polymetal increased its share in JSC South-Verkhoyansk Mining Company (Nezhda) to 17.66% for a cash consideration
of US$3 million.
152
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 153
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES CONTINUED
In July 2017 Polymetal has agreed to acquire an additional 7% in the JSC South-Verkhoyansk Mining Company (Nezhda) for a cash
consideration of US$8 million, from its joint venture partner, Ivan Kulakov. Simultaneously, Polymetal has acquired an option to buy out
the remaining 75.3% in Nezhda (the Call Option). The Call Option premium comprises US$12 million (Note 22) in cash payable upfront
and is exercisable based on the following terms:
• Following the preparation of the initial JORC-compliant ore reserve estimate for the open-pittable reserves, Polymetal will have the option
to acquire the remaining stake for US$100 per ounce of attributable gold reserves (equivalent to US$75.3/oz multiplied by total reserve
ounces). The total consideration shall not be less than US$105 million and not more than US$180 million. US$10 million of the
consideration will be paid in cash and the remaining amount will be paid in the Polymetal’s shares.
• The Call Option is exercisable between 1 February and 1 June 2018 entirely at Polymetal’s discretion.
• Should Polymetal decide not to proceed with the exercise of the Call Option, Polymetal will have a put option to sell its 24.7% stake to
Mr. Kulakov’s investment vehicle, Pallavicino Holdings Ltd, an unrelated party, at a notional cost of EUR1,000.
• As of the reporting date, the completion of the sale and purchase of the additional 7% share in the JV and exercise of the Call Option are
subject to approval by the Russian Federal Government’s Commission on Foreign Investments into Companies of Strategic Importance.
The exercise of the Call Option is also subject to approval by the Russian Federal Antimonopoly Service.
The Group has determined that the increase in shareholding does not represent a significant change in circumstances that indicate a
change in joint control and Nezhda continues to meet the definition of a joint venture. Cash consideration of US$8 million paid for the
additional stake is accounted for as part of the net investment in the joint venture. The Group has a legal right to recovery of this US$8 million
in the event that the associated transaction does not receive the required approvals. The Group has performed a fair value valuation of the
Call Option at origination date and, as of 31 December 2017 (Note 28), has determined that its fair value approximates to its cost of US$12
million (see Note 22).
The Directors are confident that the necessary approvals will be received before the Call Option expires, and also believe that they will be
able to extend the option by taking other mitigating actions if required. However, there remains a risk that the Group will not be able to
exercise the Call Option, in which case management will reassess the recoverability of the investment which could lead to a material
impairment charge.
Prognoz Serebro LLC
In January 2017 the Group entered into an agreement with Polar Acquisition Ltd (PAL), under which Polymetal will participate in the
development of the Prognoz silver deposit in Yakutia, Russia (Prognoz). Under the agreement, Polymetal acquired a 5% interest in Prognoz
for US$5 million (including US$2 million of related expenses) in cash through the purchase of 10% of Polar Silver Resources’ share capital,
the entity holding a 50% interest in Prognoz, with the remaining 50% owned by a group of private investors. The arrangement allows
Polymetal to acquire from PAL its remaining 45% interest in Prognoz for a consideration based on the JORC compliant reserves
estimate upon completion of the technical study. The Group has determined that Prognoz constitutes a joint venture under
IFRS 11 Joint Arrangements and therefore the investment was accounted for using the equity method.
GRK Amikan
GRK Amikan is a production company which holds 100% interest in Veduga gold deposit in the Krasnoyarsk region of the Russian Federation.
During the year ended 31 December 2017 the Group purchased ore from GRK Amikan for the total amount of US$35 million (2016:
US$11 million) (Note 32) and eliminated unrealised profit on inventories not yet processed against its share of net profit in GRK Amikan.
Aktogai Mys LLC
In June 2015 Polymetal purchased a 25% stake in the company Aktogai Mys LLC, which owns the Dolinnoye exploration licence in
Kazakhstan Republic (including part of an intracompany loan) from the unrelated party. At the same time Polymetal also entered into an
agreement to finance, organise and ensure the execution of exploration activities: to obtain permission and approvals for drilling from
competent authorities, to perform no more than 20 km of exploration drilling; and to undertake technical research as well as a JORC
feasibility study in exchange for a right to increase its share in the project up to 50% after the completion of these tasks.
By 2017 the earn-in conditions had been satisfied by extensive exploration and the preparation of a JORC-compliant reserve estimate
for the property. In June 2017 the earn-in arrangement between Polymetal and its partner was completed and Polymetal has acquired
an additional 25% interest in the Aktogai Mys LLC for a net consideration of US$1 million. In September 2017 Polymetal contributed
US$2 million to Aktogai Mys charter capital.
The Group has determined that Aktogai Mys LLC continues to constitute a joint venture under IFRS 11 Joint Arrangements and the
investment is accounted for using the equity method.
During the year ended 31 December 2017 the Group purchased ore from Aktogai Mys LLC for the total amount of US$3 million
(2016: nil) (Note 32) and eliminated unrealised profit on inventories not yet processed against its share of net profit in Aktogai Mys LLC.
Proeks LLC
In November 2015 the Group acquired a 24.9% share in a diamond exploration project located in the north-west of the Russian Federation
for the cash consideration of a US$2 million. During the year ended 31 December 2017 the Group increased its share in Proeks LLC to 30%
for the consideration of US$1 million. The Group determined that it has significant influence in the entity and the investment is accounted
for using the equity method.
Prognoz Serebro LLC, Aktogai Mys LLC and Proeks LLC do not represent equity method investments that are individually material.
The following table summarises the aggregate financial position and the Group’s share of net profit/(losses) of the investments:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenue
(Loss)/profit for financial period
Group’s share in investment net income/(loss) less prior year
unrecognised losses
Share of profit recognised for the year less inventories unrealised
profit eliminations
21. INVENTORIES
Inventories expected to be recovered after 12 months
Ore stock piles
Consumables and spare parts
Total non-current inventories
Inventories expected to be recovered in the next 12 months
Copper, gold and silver concentrate
Ore stock piles
Work in-process
Doré
Refined metals
Metal for refining
Total metal inventories
Consumables and spare parts
Total
Nezhda
Amikan
Non-
significant
investments
Total
Total
31 December
2017
US$m
31 December
2017
US$m
31 December
2017
US$m
31 December
2017
US$m
31 December
2016
US$m
77
18
(45)
(6)
44
–
(5)
(1)
(1)
40
41
(39)
(3)
39
36
11
5
6
46
15
(63)
(6)
(8)
3
(3)
(1)
(2)
163
74
(147)
(15)
75
39
3
3
3
99
59
(87)
(9)
62
41
10
2
–
Year ended
31 December
2017
US$m
31 December
2016
US$m
86
37
123
103
144
57
13
2
9
328
186
514
80
33
113
95
157
42
12
3
6
315
178
493
154
154
POLYMETAL INTERNATIONAL PLC
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 155
ANNUAL REPORT & ACCOUNTS 2017 155
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21. INVENTORIES CONTINUED
Write-downs of metal inventories to net realisable value
The Group recognised the following (write-downs)/reversals to net realisable value of its metal inventories:
24. BORROWINGS
Borrowings at amortised cost:
Actual interest rate at
31 December 2017
31 December 2016
Ore stock piles
Ore in heap leach piles
Copper, gold and silver concentrate
Total
Year ended
31 December 2017
Khabarovsk
US$m
Magadan
US$m
Kazakhstan
US$m
(3)
–
–
(3)
(11)
(3)
2
(12)
(1)
–
–
(1)
Year ended
31 December
2016
Total
operating
segments
US$m
Total
operating
segments
US$m
(15)
(3)
2
(16)
(14)
(5)
2
(21)
The key assumptions used as at 31 December 2017 in determining net realisable value of inventories (including the commodity price
assumptions for long-term stockpiles) were consistent with those used in the goodwill impairment review (Note 19). For short-term metal
inventories applicable forward prices as of 31 December 2017 were used.
During the year ended 31 December 2017 the Group provided for obsolete consumables and spare parts inventory in the amount of
US$3 million (year ended 31 December 2016: write-down of US$6 million).
The amount of inventories held at net realisable value at 31 December 2017 is US$60 million (31 December 2016: US$45 million).
22. TRADE RECEIVABLES AND OTHER FINANCIAL INSTRUMENTS
Receivables from provisional copper, gold and silver concentrate sales
Other receivables
Accounts receivable from related parties (Note 32)
Less: Allowance for doubtful debts
Total trade and other receivables
Call Option related to the Nezhda acquisition (Note 20)
Short-term loans provided to related parties (Note 32)
Short-term loans provided to third parties
Total other short-term financial instruments
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
26
15
8
(2)
47
12
7
5
24
71
35
25
–
(3)
57
–
7
6
13
70
The average credit period on sales of copper, gold and silver concentrate at 31 December 2017 was 20 days (2016: 20 days). No interest is
charged on trade receivables. The Group’s allowance for doubtful debt relates to its non-trade receivables. There are no trade receivables
either past due or impaired as at 31 December 2017 (31 December 2016: US$ nil).
23. CASH AND CASH EQUIVALENTS
Bank deposits
– foreign currencies
Current bank accounts
– RUB
– foreign currencies
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
11
2
23
36
31
8
9
48
Bank deposits as at 31 December 2017 bear an interest rate 9% for Kazakh Tenge (KZT) deposits (2016: 0.3%-6% per annum for US Dollar
deposits; 16% per annum for KZT deposits), total amount being demand deposits as of 31 December 2017 (2016: with an average maturity
at inception 15 days with US$14 million being demand deposits).
Type
of rate
31 Dec
2017
31 Dec
2016
Current
US$m
Secured loans from third parties
US Dollar denominated
US Dollar denominated
Total
Unsecured loans from third parties
US Dollar denominated
US Dollar denominated
Euro denominated
Total
floating
–
3.85%
fixed
4.10%
4.10%
floating
fixed
fixed
3.73%
6.17%
2.85%
3.96%
7.50%
2.85%
–
–
–
–
26
–
26
26
Non-
current
US$m
–
436
436
834
152
8
994
1,430
Total
US$m
Current
US$m
–
436
436
834
178
8
1,020
1,456
98
–
98
–
–
–
–
Non-
current
S$m
638
61
699
Total
US$m
736
61
797
500
500
78
3
581
78
3
581
1,378
98
1,280
Bank loans
The Group has a number of borrowing arrangements with various lenders. These borrowings consist of unsecured and secured loans and
credit facilities denominated in US Dollars. Where security is provided it is in form of a pledge of revenue from certain sales agreements.
Movements in borrowings are reconciled as follows:
1 January
US$m
1,350
1,378
Borrowings
obtained
US$m
Repayments of
borrowings
US$m
1,436
3,108
(1,410)
(3,033)
Net foreign
exchange
losses
US$m
(108)
(14)
Exchange
differences
on
translating
foreign
operations
US$m
108
14
Arrangement
fee
amortisation
US$m
31 December
2017
US$m
2
3
1,378
1,456
Year ended 31 December 2016
Year ended 31 December 2017
At 31 December 2017, the Group had undrawn borrowing facilities of US$1,361 million (31 December 2016: US$998 million). The Group
complied with its debt covenants throughout 2017 and 2016.
The table below summarises maturities of borrowings:
Year ended, 31 December 2017
31 December 2018
31 December 2019
31 December 2020
31 December 2021
31 December 2022
31 December 2023
31 December 2024
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
–
26
105
248
513
414
100
50
98
632
538
110
–
–
–
–
1,456
1,378
156
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 157
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25. ENVIRONMENTAL OBLIGATIONS
Environmental obligations include decommissioning and land restoration costs and are recognised on the basis of existing project business
plans as follows:
Opening balance
Changes in estimates for the year:
Change in estimate of environmental obligations
Decommissioning liabilities recognised in Propety, plant and equipment (Note 18)
Rehabilitation liabilities
Effect of unwinding of discount
Acquired in business combinations
Translation effect
Closing balance
Year ended
31 December
2017
US$m
31 December
2016
US$m
37
(4)
3
–
3
–
–
39
33
(5)
(3)
1
4
2
5
37
27. COMMITMENTS AND CONTINGENCIES
Commitments
Capital commitments
The Group’s budgeted capital expenditure commitments as at 31 December 2017 amounted to US$46 million (2016: US$64 million).
Social and infrastructure commitments
During the year ended 31 December 2016 the Group signed a memorandum with East-Kazakhstan Oblast Administration (local Kazakhstan
government), where the Group (namely its subsidiaries Bakyrchik Mining Venture LLC and Inter Gold Capital LLC) agrees to participate in
financing of certain social and infrastructure development project of the region. During the year ended 31 December 2017 the Group paid
US$2 million (2016: US$2 million) under this programme and the total social expense commitment as at 31 December 2017 amounts to
US$28 million, payable in the future periods as follows:
Within one year
From one to five years
Thereafter
Total
31 December
2017
US$m
2
22
4
28
The principal assumptions are related to Russian Rouble, Kazakh Tenge and Armenian Dram projected cash flows. The assumptions used
for the estimation of environmental obligations were as follows:
Discount rates
Inflation rates
Expected mine closure dates
2017
2016
7.23%-14.67%
7.1%-12.77%
1.57%-8.5%
(0.45%)-8.5%
1-34 years
1-34 years
The Group does not hold any assets that are legally restricted for purposes of settling environmental obligations.
26. TRADE PAYABLES AND ACCRUED LIABILITIES
Forward sale commitments
The Group has certain physical gold and silver forward sale commitments which are priced at the prevailing market price, calculated with
reference to the LBMA or LME gold price, which are accounted for as executed as the Group expects to and has historically physically
delivered into these contracts.
Operating leases: Group as a lessee
During the year ended 31 December 2017 the Group recognised US$7 million as operating lease expenses (2016: US$5 million).
The land in the Russian Federation and Kazakhstan on which the Group’s production facilities are located is owned by the state.
The Group leases this land through operating lease agreements, which expire in various years through to 2058.
Future minimum lease payments due under non-cancellable operating lease agreements at the end of the period were as follows:
Trade payables
Accrued liabilities
Labour liabilities
Provision for investment in Special Economic Zone (Note 12)
Account payable to related parties
Other payables
Consideration payable to Dundee (Note 4)
Advances received
Total
Year ended
31 December
2017
US$m
31 December
2016
US$m
62
40
14
10
6
3
–
–
51
36
12
14
4
8
5
3
135
133
In 2017, the average credit period for payables was 25 days (2016: 31 days). There was no interest charged on the outstanding payables
balance during the credit period. The Group has financial risk management policies in place, which include budgeting and analysis of cash
flows and payment schedules to ensure that all amounts payable are settled within the credit period.
Within one year
From one to five years
Thereafter
Total
31 December
2017
US$m
31 December
2016
US$m
3
5
4
12
2
3
2
7
Contingencies
Operating environment
Emerging markets such as Russia and Kazakhstan are subject to different risks than more developed markets, including economic, political
and social, and legal and legislative risks. Laws and regulations affecting businesses in Russia continue to change rapidly, tax and regulatory
frameworks are subject to varying interpretations. The future economic direction of Russia and Kazakhstan is heavily influenced by the fiscal
and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment.
Taxation
Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s
interpretation of such legislation as applied to the transaction and activity of the companies of the Group may be challenged by the relevant
regional and federal authorities and as a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain
open to review by the authorities in respect of taxes for three calendar years preceding the year of review. Under certain circumstances
reviews may cover longer periods.
During 2017 and 2016 the Group was involved in a number of litigations in Russia, Kazakhstan and Armenia. Management
identified a total exposure (covering taxes and related interest and penalties) of US$7 million in respect of contingent liabilities
(2016: US$13 million), including US$5 million related to income tax (2016: US$4 million).
158
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 159
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
28. FAIR VALUE ACCOUNTING
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into Levels 1 to 3 based on the degree to which the fair value is observable as follows:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly or indirectly.
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
At 31 December 2017 and 31 December 2016, the Group held the following financial instruments:
Receivables from provisional copper, gold and silver concentrate sales
Nezhda option
Contingent consideration liability
Receivables from provisional copper, gold and silver concentrate sales
Contingent consideration liability
31 December 2017
Level 1
US$m
Level 2
US$m
Level 3
US$m
–
–
–
–
26
–
–
26
–
12
(62)
(50)
31 December 2016
Level 1
US$m
Level 2
US$m
–
–
–
35
–
35
Level 3
US$m
–
(76)
(76)
Total
US$m
26
12
(62)
(24)
Total
US$m
35
(76)
(41)
During the reporting periods, there were no transfers between Level 1 and Level 2.
The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables and short-term debt recorded at
amortised cost approximate to their fair values because of the short maturities of these instruments. The estimated fair value of the Group’s
debt, calculated using the market interest rate available to the Group as at 31 December 2017, is US$1,233 million, and the carrying value
as at 31 December 2017 is US$1,456 million (see Note 24). Carrying values of the other long-term loans provided to related parties as at
31 December 2017 and 31 December 2016 approximated to their fair values.
Receivables from provisional copper, gold and silver concentrate sales
The fair value of receivables arising from copper, gold and silver concentrate sales contracts that contain provisional pricing mechanisms
is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal.
As such, these receivables are classified within Level 2 of the fair value hierarchy.
Contingent consideration liabilities
The table below sets forth a summary of changes in the fair value of the Group’s Level 3 financial liabilities for the year ended
31 December 2017:
Opening balance
Additions
Change in fair value, included in profit or loss
Unwinding of discount (Note 15)
Settlement though issue of shares (Note 21)
Cash settlement
Total contigent consideration
Less current portion of contingent
consideration liability
31 December 2017
31 December 2016
Omolon
US$m
Kyzyl
US$m
Primorskoye
US$m
Lichkvaz
US$m
Kapan
US$m
15
–
(1)
1
–
(4)
11
(4)
7
19
–
(7)
–
–
–
12
–
12
8
–
2
–
(10)
–
–
–
–
7
–
(5)
1
–
–
3
–
3
9
–
2
1
–
(1)
11
(1)
10
Komar
US$m
18
–
7
–
–
–
25
–
25
Total
US$m
Total
US$m
76
–
(2)
3
(10)
(5)
62
(5)
57
26
29
22
1
–
(2)
76
(14)
62
Omolon
In 2008, the Group recorded a contingent consideration liability related to the acquisition of 98.1% of the shares in Omolon Gold Mining
Company LLC (Omolon). The fair value of the contingent consideration liability was determined using a valuation model which simulates
expected production of gold and silver at the Kubaka mine and future gold and silver prices to estimate future revenues of Omolon.
This liability is revalued at each reporting date based on 2% of the life-of-mine revenues with the resulting gain or loss recognised in the
consolidated income statement. The liability recognised as at 31 December 2017 was US$11 million, including current portion of US$4 million.
Kyzyl
During the year ended 31 December 2014 the Group completed the acquisition of the Kyzyl gold project in Kazakhstan. The fair
value of the related contingent consideration liability was estimated using the Monte Carlo model. The liability was revalued at the
31 December 2017 using the same method with updated inputs as of reporting date and amounts to US$12 million (2016: US$19 million).
Primorskoye
During the year ended 31 December 2015 the Group recorded a contingent consideration liability related to the acquisition of 100% interest
in Primorskoye. Deferred conditional cash consideration, which is determined as the highest of US$13,333 per tonne of contained silver
equivalent (translating into US$0.415 per silver equivalent ounce) based on the audited reserves estimate of the deposit, and US$8 million,
was revalued at 31 December 2016 at US$8 million. Following the determination of the mineral resource estimate at March 2017, the
deferred consideration was calculated at US$9.7 million and settled by 815,348 newly issued Polymetal International shares (Note 30).
Lichkvaz
During the year ended 31 December 2015 the Group completed the acquisition of Lichkvaz CJSC (Lichkvaz), the company owning the
Lichkvaz exploration licence in Armenia (Note 4). The fair value of the related contingent consideration liability is calculated using a valuation
model which simulates expected production of metals and future gold, silver and copper prices to estimate future value of the metals in the
actually extracted ore. The liability recognised at 31 December 2017 was US$3 million.
Kapan
During the year ended 31 December 2016 the Group completed the acquisition of DPMK, the company owning the Kapan mine and
processing plant in Armenia (Note 4). The seller is entitled to receive a 2% NSR (Net Smelter Return) royalty on future production from
the Kapan Gold Mine capped at US$25 million. At the 31 December 2017, the fair value of the contingent consideration was estimated
at US$11 million, including current portion of US$1 million.
Komar
On 1 August 2016 the Group completed the acquisition of Orion Minerals LLP, the holding company for the Komarovskoye Gold Deposit (Komar)
in the Republic of Kazakhstan (Note 4). The seller is entitled to the contingent consideration that was determined based on the LOM model of the
Komarovskoye mine and calculated using Monte Carlo modelling. At the 31 December 2017, the fair value of the contingent consideration was
estimated at US$25 million (2016: US$18 million), with an increase due to the growth in ore reserves and change in the mine plan.
Assumptions used in the valuation of the Omolon, Kapan and Lichkvaz are consistent with those used in goodwill impairment test (Note 19),
such as long-term metal prices and discount rates. Estimated production volumes are based on life of mine plans and are approved by
management as part of the long-term planning process.
Monte-Carlo modelling for Kyzyl and Komarovskoye contingent consideration liabilities was performed with following inputs:
• Gold price volatility: 16.19% – 19.58% (2016: 16.23% – 18.23%)
• Share price volatility: 40.5% (2016: 41.9%)
• Constant correlation between gold and share price: 86% (2016: 90%)
• Dividend yield: 2%.
Nezhda Call Option
The Group has valued the Nezhda Call Option (Note 20) using the Black-Scholes option valuation model, with share price volatility
assumption approximating to 30%. Exercise price of the option was assessed based on the project NPV, calculated using Nezhda
JORC ore reserves and mineral resources available and gold price and discount rates consistent with assumptions used for the
goodwill impairment testing (Note 19). The fair value of the option approximates to its cost of US$12 million as of 31 December 2017.
The Directors consider that a reasonably possible change in a valuation assumption would not have a material impact on the financial
statements for contingent considerations payable.
Commodity forward contracts
The Group enters into forward contracts for the physical delivery of metals which will be priced according to the prevailing London Bullion
Market Association or London Metal Exchange index. The Group’s policy is not to enter into fixed priced contracts. The forward sales
contracts qualify for the normal purchase/sales or ‘own use’ exemption for accounting purposes and are outside the scope of IAS 39
Financial Instruments: Recognition and Measurement.
160
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 161
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. RISK MANAGEMENT ACTIVITIES
Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy is to provide value to stakeholders
by maintaining an optimal short-term and long-term capital structure, reducing cost of capital, and to safeguard the ability to support the
operating requirements on an ongoing basis, continuing the exploration and development activities.
The capital structure of the Group consists of net debt (borrowings as detailed in Note 24 offset by cash and bank balances as detailed
in Note 23 and equity of the Group comprising the Stated Capital account, reserves and retained earnings as detailed in Note 30.
The Group’s committed borrowings are subject to certain financial covenants. Compliance with covenants is reviewed on a semi-annual
basis and the Group’s Board is satisfied with forecast compliance with covenants on those borrowings.
The Group’s Board reviews the capital structure of the Group on a semi-annual basis. As part of this review, the Board considers the
cost of capital and the risks associated with each class of capital.
Major categories of financial instruments
The Group’s principal financial liabilities comprise borrowings, derivatives, trade and other payables. The Group has various financial assets
such as accounts receivable, loans advanced and cash and cash equivalents.
Financial assets
Financial assets at FVTPL
Receivables from provisional copper, gold and silver concentrate sales
Call Option related to the Nezhda acquisition (Note 20)
Loans and receivables, including cash and cash equivalents
Cash and cash equivalents
Trade and other receivables
Non-current loans and receivables
Total financial assets
Financial liabilities
Financial liabilities at FVTPL
Contingent consideration liability
Financial liabilities at amortised cost
Borrowings
Trade and other payables
Total financial liabilities
Year ended
31 December
2017
US$m
31 December
2016
US$m
26
12
36
33
15
122
35
–
48
35
10
128
62
76
1,456
81
1,599
1,378
82
1,536
Trade and other payables exclude employee benefits and social security.
The main risks arising from the Group’s financial instruments are foreign currency and commodity price risk, interest rate,
credit and liquidity risks.
At the end of the reporting period, there are no significant concentrations of credit risk for receivables designated at FVTPL.
The carrying amount reflected above represents the Group’s maximum exposure to credit risk for such receivables.
Derivative financial instruments
Presented below is a summary of the Group’s derivative contracts recorded on the consolidated balance sheet at fair value.
Year ended
Consolidated balance
sheet location
31 December
2017
US$m
31 December
2016
US$m
Receivable from provisional copper, gold and silver concentrate sales
Accounts receivable
26
35
Receivable from provisional copper, gold and silver concentrate sales
Revenue
2
(7)
Year ended
Location of gain (loss)
recorded in profit or loss
31 December
2017
US$m
31 December
2016
US$m
162
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
Foreign currency and commodity price risk
In the normal course of business the Group enters into transactions for the sale of its commodities, denominated in US Dollars. In addition,
the Group has assets and liabilities in a number of different currencies (primarily Russian Rouble and Kazakh Tenge). As a result, the Group
is subject to transaction and translation exposure from fluctuations in foreign currency exchange rates.
The Group does not currently use derivative instruments to hedge its exposure to foreign currency risk.
The carrying amounts of monetary assets and liabilities denominated in foreign currencies other than functional currencies of the individual
Group entities at 31 December 2017 and 31 December 2016 were as follows:
US Dollar
Euro
GBP
Total
Assets
Liabilities
31 December
2017
US$m
31 December
2016
US$m
31 December
2017
US$m
31 December
2016
US$m
53
2
–
55
52
–
7
59
400
11
–
411
540
5
–
545
US Dollar denominated assets and liabilities disclosed above exclude balances outstanding held in Polymetal International plc and its
intermediate holding companies, where the functional currency is US Dollar (US$) as described in Note 2.
Currency risk is monitored on a monthly basis by performing a sensitivity analysis of foreign currency positions in order to verify that potential
losses are at an acceptable level.
The table below details the Group’s sensitivity to changes in exchange rates by 10% which is the sensitivity rate used by the Group for
internal analysis. The analysis was applied to monetary items denominated in respective currencies at the reporting dates.
Profit or loss (RUB to US Dollar)
Profit or loss (KZT to US Dollar)
Year ended
31 December
2017
US$m
31 December
2016
US$m
(15)
(20)
(41)
(7)
Provisionally priced sales
Under a long-established practice prevalent in the industry, copper, gold and silver concentrate sales are provisionally priced at the time
of shipment. The provisional prices are finalised in a contractually specified future period (generally one to three months) primarily based
on quoted LBMA or LME prices. Sales subject to final pricing are generally settled in a subsequent month. The forward price is a major
determinant of recorded revenue.
Interest rate risk
The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates. The risk is
managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings. The Group does not currently hedge
its exposure to interest rate risk.
The Group’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk section of this note.
For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period
was outstanding for the whole period. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key
management personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended
31 December 2017 would have decreased/increased by US$9 million (2016: US$13 million). This is mainly attributable to the Group’s
exposure to interest rates on its variable rate borrowings.
The Group’s sensitivity to interest rates has increased during the current period mainly due to the increase in variable rate debt instruments.
Credit risk
Credit risk is the risk that a customer may default or not meet its obligations to the Group on a timely basis, leading to financial losses to
the Group. The Group’s financial instruments that are potentially exposed to concentration of credit risk consist primarily of cash and cash
equivalents and loans and receivables.
Accounts receivable are regularly monitored and assessed and where necessary an adequate level of provision is maintained. Trade accounts
receivable at 31 December 2017 and 31 December 2016 are represented by provisional copper, gold and silver concentrate sales transactions.
A significant portion of the Group’s trade accounts receivable is due from reputable export trading companies. With regard to other loans and
receivables the procedures of accepting a new customer include checks by a security department and responsible on-site management for
business reputation, licences and certification, creditworthiness and liquidity. Generally, the Group does not require any collateral to be pledged
in connection with its investments in the above financial instruments. Credit limits for the Group as a whole are not set up.
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 163
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
29. RISK MANAGEMENT ACTIVITIES CONTINUED
The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating
agencies. The major financial assets at the balance sheet date other than trade accounts receivable presented in Note 23 are cash and cash
equivalents at 31 December 2017 of US$36 million (2016: US$48 million).
Weighted average number of shares: Diluted earnings per share
Both basic and diluted earnings per share were calculated by dividing profit for the year attributable to equity holders of the parent by the
weighted average number of outstanding common shares before/after dilution respectively. The calculation of the weighted average number
of outstanding common shares after dilution is as follows:
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle its liabilities as they fall due.
The Group’s liquidity position is carefully monitored and managed. The Group manages liquidity risk by maintaining detailed budgeting, cash
forecasting processes and matching the maturity profiles of financial assets and liabilities to help ensure that it has adequate cash available
to meet its payment obligations.
The following tables detail the Group’s remaining contractual maturity for its financial liabilities with agreed repayment periods. The tables
have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be
required to pay. The tables include both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted
amount is derived from interest rate curves at the end of the reporting period. The contractual maturity is based on the earliest date on which
the Group may be required to pay.
Presented below is the maturity profile of the Group’s financial liabilities as at 31 December 2017:
Weighted average number of outstanding common shares
Dilutive effect of share appreciation plan
Weighted average number of outstanding common shares after dilution
Year ended
31 December
2017
31 December
2016
429,880,907 426,135,182
5,830,775
259,452
435,711,682 426,394,634
There were no adjustments required to earnings for the purposes of calculating the diluted earnings per share during the year ended
31 December 2017 (year ended 31 December 2016: nil).
At 31 December 2017 the outstanding LTIP awards issued under 2014-2017 tranches represent dilutive potential ordinary shares with
respect to earnings per share from continuing operations as these are in the money as of reporting date (31 December 2016: all tranches
represent anti-dilutive potential ordinary shares as these were out of money).
31 December
2017
US$m
31 December
2016
US$m
The awards issued under management bonus deferral award plan are dilutive as of 31 December 2017 and 31 December 2016 being
contingently issued shares and are included in the calculation of diluted EPS based on the weighted average number of shares that
would be issuable if the end of the reporting period were the end of the contingency period.
Borrowings
Accounts payable and accrued expenses
Contigent consideration (Note 28)
Total
Less than
3 months
3-12 months
1-5 years
16
63
2
81
71
18
4
93
1,427
–
28
1,455
More than
5 years
155
–
41
196
Total
1,669
81
75
Total
1,506
82
77
1,825
1,665
30. STATED CAPITAL ACCOUNT AND RETAINED EARNINGS
As at 31 December 2017, the Company’s issued share capital consisted of 430,115,480 ordinary shares (2016: 428,262,338 ordinary shares)
of no par value, each carrying one vote. The Company does not hold any shares in treasury (2016: none). The ordinary shares reflect 100%
of the total issued share capital of the Company.
The movements in the stated capital account in the year were as follows:
Balance at 31 December 2015
Issue of shares in accordance with Deferred Share Awards plan
Issue of shares for Kapan (Note 4)
Issue of shares to acquire an additional 25% interest in Tarutin
Issue of shares for Saum Mining Company LLC (Note 4)
Balance at 31 December 2016
Issue of shares for Tarutin
Issue of shares for Primorskoye contingent consideration (Note 28)
Issue of shares in accordance with Deferred Share Awards plan
Balance at 31 December 2017
Stated capital
account
no. of shares
Stated capital
account
US$m
424,650,138
1,969
110,850
1,481,785
898,875
1,120,690
1
15
14
11
428,262,338
2,010
893,575
815,348
144,219
10
10
1
430,115,480
2,031
In January 2017 the Group increased its interest in Vostochny Basis LLC (holder of the licence for the Tarutinskoye copper deposit (Tarutin)
by 25% (from 75% to 100%). The Group purchased the additional 25% from an unrelated party for a consideration of US$10 million, payable
through the issue of 893,575 new Polymetal International plc shares. The Group has previously determined that Vostochny Basis LLC meets
the definition of a subsidiary and therefore it was consolidated from the date of the 25% share acquisition. The increase in interest in Tarutin
was recognised as an acquisition of the non-controlling interest and recognised interest within equity. As of 31 December 2017 and during
the years ended 31 December 2017 and 31 December 2016 Tarutin did not not give rise to a significant non-controlling interest to be
presented within equity, income statement and statement of comprehensive income.
Reserves available for distribution to shareholders are based on the available cash in the Company under Jersey law. As Russian, Kazakh
and Armenian legislation identifies the basis of distribution of the dividends as accumulated profit, the ability to distribute cash up to the
Company from the Russian, Kazakh and Armenian operating companies will be based on the statutory historical information of each stand-
alone entity. Statutory financial statements in the Russian Federation are prepared in accordance with Russian accounting standards which
differs from IFRS, while Kazakhstan and Armenia have adopted IFRS from 1 January 2006 and 1 January 2011, respectively. However,
current legislation and other statutory regulations dealing with distribution rights are open to legal interpretation; consequently, actual
distributable reserves may differ from the amount of accumulated profit in accordance with statutory financial statements.
31. SHARE-BASED PAYMENTS
For the year ended 31 December 2017, share-based compensation in the amount of US$10 million including US$1 million of management
bonus deferral award (2016: US$7 million and US$1 million, respectively) was recognised in general, administrative and selling expenses
in the consolidated income statement (Note 11). As of reporting date the unrecognised share-based compensation expense related to
non-vested equity-settled stock appreciated rights is detailed as follows:
Tranche 2014
Tranche 2015
Tranche 2016
Tranche 2017
31 December 2017
31 December 2016
Number of
option granted
shares
2,567,977
2,636,366
2,039,787
2,070,002
Expected
amortisation
period
years
Unrecognised
share-based
compensation
expense
US$m
Expected
amortisation
period
years
Unrecognised
share-based
compensation
expense
US$m
0.3
1.3
2.3
3.3
1
3
6
12
22
1.3
2.3
3.3
NA
3
6
7
–
16
During the year ended 31 December 2017 144,219 shares under management bonus plan deferral award were released and issued in
accordance with the plan (2016: 110,850). The assumptions used in the calculation and fair value of one award, calculated based on those
assumptions, are set in the table below:
Risk free rate
Expected volatility
Constant correlation
Expected life, years
Share price at the date of grant (US$)
Fair value of one award (US$)
Tranche 2014
Tranche 2015
Tranche 2016
Tranche 2017
1.60%
46.14%
34.49%
4
13.3
3.2
1.17%
43.70%
30.86%
4
8.2
4.6
1.11%
42.05%
32.32%
4
10.3
4.6
1.60%
41.65%
34.49%
4
13.3
6.9
164
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 165
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
32. RELATED PARTIES
33. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
Transactions with related parties
Purchases of ore from equity method investments (Note 20)
Other sales recognised in other operating expenses, net
Balances outstanding as of end of reporting period
Loans accounted for as a part of the net investment in joint venture
Short-term loans provided to equity method investments
Long-term loans provided to equity method investments
Accounts receivable from equity method investments
Interest receivable from equity method investments
Accounts payable to equity method investments
Year ended
31 December
2017
US$m
31 December
2016
US$m
38
12
11
2
Year ended
31 December
2017
US$m
31 December
2016
US$m
52
8
6
8
2
7
83
–
7
1
–
1
(4)
5
Related parties are considered to include shareholders, affiliates, associates, joint ventures and entities under common ownership and
control with the Group and members of key management personnel.
During the year ended the Group purchased ore from its associate GRK Amikan (Note 20) for the amount of US$35 million
(2016: US$11 million) and its joint venture Aktogai Mys for the amount of US$3 million (2016: nil). Other sales recognised within other
operating expenses are mainly represented by sales of machinery and equipment.
Carrying values of other long-term loans provided to related parties as at 31 December 2017 and 31 December 2016 approximate their fair values.
The amounts outstanding at the balance sheet dates are unsecured and expected to be settled in cash. No expense has been recognised
in the reporting period for bad or doubtful debts in respect of the amounts owed by related parties.
The remuneration of Directors and other members of key management personnel during the periods was as follows:
Share-based payments
Short-term benefits of board members
Short-term employee benefits
Year ended
31 December
2017
US$m
31 December
2016
US$m
2
2
2
2
2
1
Profit before tax
Adjustments for:
Depreciation and depletion recognised in the statement of comprehensive income
Write-down of exploration assets and construction in progress
Write-down of metal inventories to net realisable value
Write-down of non-metal inventories to net realisable value
Additional mining taxes and VAT exposures, penalties and accrued interest, net
Provision for investment in Special Econonic Zone
Share-based compensation
Finance costs
Finance income
Loss on disposal of property, plant and equipment
Rehabilitation expenses
Change in contingent consideration liability
Share of profit of associates and joint ventures
Foreign exchange (loss)/gain, net
Change in estimate of environmental obligations
Other non-cash expenses
Movements in working capital
Increase in inventories
(Decrease)/ Increase in VAT receivable
(Increase)/Decrease in trade and other receivables
(Increase)/Decrease in prepayments to suppliers
(Decrease)/Increase in trade and other payables
Increase/(Decrease) in other taxes payable
Cash generated from operations
Interest paid
Interest received
Income tax paid
Net cash generated by operating activities
Year ended
31 December
2017
US$m
Year ended
31 December
2016
US$m
Notes
18
21
21
12
12
11, 31
15
12
28
20
443
214
3
16
3
(8)
12
10
63
(4)
1
–
(2)
(3)
10
(4)
4
(35)
(31)
14
(6)
(20)
10
690
(63)
1
(95)
533
564
155
2
21
6
(12)
14
7
63
(3)
1
1
22
–
(65)
(5)
1
(50)
14
(4)
2
17
(6)
745
(61)
1
(155)
530
Significant non-cash transactions during the year ended 31 December 2017 represent the issuance of shares to settle Primorskoye
contingent consideration of US$10 million and the issuance of shares to acquire Tarutin non-controlling interest of US$10 million
(2016: the issuance of shares amounting to US$40 million in respect of the business combinations, the acquisition of assets and
acquisition of non-controlling interest).
Cash flows related to exploration amounted to US$33 million for the year ended 31 December 2017 (2016: US$56 million). During the year
ended 31 December 2017, the capital expenditure related to the new projects, increasing the operating capacity amounts to US$173 million
(2016: US$121 million).
34. SUBSEQUENT EVENTS
In February 2018 the Group entered into a legally binding agreement to increase its stake in the Prognoz Serebro LLC (Note 12) from
5% to 50% through the acquisition of a further 45% ownership in the asset from Polar Acquisition Limited (PAL) for a total consideration
of US$72 million to be paid in Polymetal shares. 90% of the consideration shares will be subject to a lock–up period of 180 days.
Additionally Polymetal commits to pay PAL a net smelter return royalty of between 2% and 4% (pro rated by the 45% stake being acquired),
which will be dependent on the applicable statutory mineral extraction tax rate at the time when the asset enters commercial production.
The royalty agreement is subject to an agreed cap. The transaction is expected to close in first quarter 2018, subject to receipt of the
required regulatory approvals.
166
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 167
ALTERNATIVE PERFORMANCE MEASURES
Introduction
The financial performance reported by the Group contains certain Alternative Performance Measures (APMs) disclosed to compliment
measures that are defined or specified under International Financial Reporting Standards (IFRS). APMs should be considered in addition to,
and not as a substitute for, measures of financial performance, financial position or cash flows reported in accordance with IFRS.
The Company believes that these measures, together with measures determined in accordance with IFRS, provide the readers with
valuable information and an improved understanding of the underlying performance of the business.
APMs are not uniformly defined by all companies, including those in the Group’s industry. Therefore, the APMs used by the Group may not
be comparable to similar measures and disclosures made by other companies.
Purpose
APMs used by the Group represent financial KPIs for clarifying the true financial performance of the Company and measuring it against
strategic objectives, given the following background:
• widely used by the investor and analyst community in mining sector and, together with ifrs measures, apms provide a holistic view of
the company;
• applied by investors to assess earnings quality, facilitate period to period trend analysis and forecasting of future earnings, understand
performance through eyes of management;
• highlight key value drivers within the business that may not be obvious in the financial statements;
• ensure comparability of information between reporting periods and operating segments by adjusting for uncontrollable or one-off factors
which impact upon ifrs measures;
• used internally by management to assess financial performance of the group and its operating segments;
• used in the group’s dividend policy; and
• certain apms are used in setting directors and management remuneration.
168
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
APMs and justification for their use
Group APM
Underlying
net earnings
Closest equivalent
IFRS measure
Profit/(loss) for the
financial period
attributable to equity
shareholders of
the Company
Adjustments made to IFRS measure
Rationale for adjustments
• Write-down of metal inventory to net
realisable value (post-tax)
• Foreign exchange (gain)/loss (post-tax)
• Change in fair value of contingent
consideration liability (post-tax)
• Exclude the impact of key significant
one-off non-recurring items and
significant non-cash items (other than
depreciation) that can mask underlying
changes in core performance
Adjusted
EBITDA
Profit/(loss) before
income tax
• Finance cost (net)
• Depreciation and depletion
• Write-down of metal and non-metal
inventory to net realisable value
• Share based compensation
• Bad debt allowance
• Net foreign exchange losses
• Change in fair value of contingent
consideration liability
• Rehabilitation costs
• Additional mining taxes, VAT,
penalties and accrued interest
• Exclude the impact of certain non-cash
element, either recurring or non-recurring,
that can mask underlying changes in
core operating performance, to be a
proxy for operating cash flow generation
Net debt
NA
• Net total of current
and non-current
borrowings
• Cash and cash
equivalents
• Measures the Group’s net indebtedness
that provides an indicator of the overall
balance sheet strength
• Used by creditors in bank covenants
Net debt/
EBITDA ratio
No equivalent
NA
• Used by creditors, credit rating agencies
and other stakeholders.
Free cash flow
Cash flows from
operating activity less
free cash flow from
investing activities
Less cash flows used in investing
activities, excluding acquisition costs in
business combinations and investments
in associates and joint ventures
Total cash
costs (TCC)
• Total cash operating
• Depreciation expense
costs
• Rehabilitation expenses Write-down of
• General, administrative
inventory to net realisable value
& selling expenses
• Intersegment unrealised profit
elimination
• Idle capacities and abnormal
production costs
• Exclude Corporate and Other segment
and development assets
All-in sustaining
cash costs
(AISC)
• Total cash operating
• AISC is based on total cash costs,
costs
• General, administrative
& selling expenses
and adds items relevant to
sustaining production.
• Reflect cash generating from
operations after meeting existing
capital expenditure commitments
• Measures the success of the Company in
turning profit into cash through the strong
management of working capital and
capital expenditure
• Calculated according to common mining
industry practice using the provisions of
Gold Institute Production Cost Standard.
• Give a picture of a Company’s current
ability to extract its resources at a
reasonable cost and generate earnings
and cash flows for use in investing and
other activities
• Include the components identified in
World Gold Council’s Guidance Note
on NonСGAAP Metrics – AllСIn Sustaining
Costs and AllСIn Costs (June 2013),
which is a nonСIFRS financial measure
• Provide investors with better visibility
into the true cost of production
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 169
OPERATIONAL STATISTICS
DUKAT
MINING
Stripping, Kt
Dukat
Goltsovoye
Lunnoye
2017
2016
change
%
2017
2016
change
%
2017
2016
change
%
–
–
NA
–
–
NA
–
–
Underground development, m
33,813
35,066
-4% 6,904
6,010
15% 8,174
5,249
Ore mined, Kt
Open-pit
Underground
Metal in ore mined (grades), g/t
gold
silver
1,605
1,661
–
–
1,605
1,661
-3%
NA
-3%
190
183
–
–
190
183
0.4
306
0.7
-36%
–
–
378
-19%
366
370
4%
NA
4%
NA
-1%
NA
56%
27%
NA
27%
552
435
–
–
552
435
1.4
334
1.5
-11%
434
-23%
MINING
Stripping, Kt
Underground
development, m
Ore mined, Kt
Open-pit
Underground
Metal in ore mined
(grades), g/t
gold
silver
Perevalnoye
Nachalny-2
Terem
Total
2017
2016
change
%
–
3,223
–
–
–
–
–
–
–
–
–
–
–
–
NA
NA
NA
NA
NA
NA
NA
2017
273
–
48
48
–
–
283
2016
change
%
2017
2016
–
–
–
–
–
–
–
NA
NA
NA
NA
NA
NA
NA
–
2,167
21
–
21
–
565
–
–
–
–
–
–
–
change
%
NA
2017
273
2016
change
%
–
NA
NA 54,281 46,325
17%
NA
NA
NA
NA
NA
2,416
2,278
48
–
2,368
2,278
6%
NA
4%
0.6
319
0.8
388
-22%
-18%
PRODUCTION
Ore processed, Kt
Metal in ore processed (grades), g/t
gold
silver
Recoveries
gold
silver
Production
gold, Koz
silver, Moz
Gold equivalent, Koz
Total cash costs, US$/SE oz
All-in sustaining cash costs, US$/SE oz
Adjusted EBITDA, US$m
Omsukchan concentrator
Lunnoye processing plant
Total
2017
2016
change
%
2017
2016
change
%
2017
2016
change
%
1,979
1,938
2%
460
435
6% 2,439
2,374
3%
0.4
321
0.6
372
-26%
-14%
1.2
352
1.5
436
-17%
-19%
0.6
327
0.8
384
-22%
-15%
86.3% 86.2%
0% 90.3% 91.9%
88.6% 85.4%
4% 92.8% 91.6%
24
17.7
245
32
19.8
279
-23%
-11%
-12%
17
4.8
77
20
5.6
90
-2%
1%
-14%
-14%
-14%
41
22.5
322
8.2
10.4
180
51
-20%
25.4
369
6.4
8.0
-12%
-13%
28%
30%
283
-36%
ALBAZINO
MINING
Stripping, Kt
Underground development, m
Ore mined, Kt
Open-pit
Underground
Gold grade in ore mined, g/t
Open-pit
Underground
PRODUCTION
Ore processed, Kt
Gold grade in ore processed, g/t
Recoveries to concentrate
Concentrate produced, Kt
Gold grade in concentrate produced, g/t
Gold in concentrate, Koz
Concentrate sold, Kt
Saleable gold in concentrate sold to off-takers, Koz
Amursk POX
Concentrate processed, Kt
Gold grade in concentrate processed, g/t
Recoveries
Gold production at Amursk POX, Koz
Total gold equivalent production, Koz
Total cash costs, US$/GE oz
All-in sustaining cash costs, US$/GE oz
Adjusted EBITDA, US$m
2017
2016
19,586
18,078
7,766
1,832
1,512
320
4.7
4.7
4.9
2017
1,725
4.9
87.5%
141
52.3
237
–
–
154
58.3
5,838
1,866
1,599
267
4.8
4.7
5.2
2016
1,654
5.0
87.2%
136
53.3
234
–
–
149
52.1
96.4%
94.5%
268
268
676
846
157
244
244
529
684
167
Change
%
8%
33%
-2%
-5%
20%
-1%
0%
-5%
Change
%
4%
-3%
0%
3%
-2%
2%
NA
NA
3%
12%
2%
10%
10%
28%
24%
-6%
170
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 171
OPERATIONAL STATISTICS
MAYSKOYE
MINING
Stripping, Kt
Underground development, m
Ore mined, Kt
Open-pit
Underground
Gold grade in ore mined, g/t
PRODUCTION
Ore processed, Kt
Gold grade in ore processed, g/t
Recoveries to concentrate
Concentrate produced, Kt
Gold grade in concentrate produced, g/t
Gold in concentrate, Koz
Concentrate sold, Kt
Saleable gold in concentrate sold to off-takers, Koz
Leaching
Ore processed, Kt
Gold grade, g/t
Gold recovery
Gold in carbon, Koz
Gold produced, Koz
Amursk POX
Concentrate processed, Kt
Gold grade in concentrate processed, g/t
Recoveries
Gold production at Amursk POX, Koz
Total gold equivalent production, Koz
Total cash costs, US$/GE oz
All-in sustaining cash costs, US$/GE oz
Adjusted EBITDA, US$m
AMURSK POX
PRODUCTION
Concentrate processed, Kt
Gold grade in concentrate processed, g/t
Recoveries
2017
4,415
19,713
2016
336
19,523
944
225
719
6.3
2017
644
5.4
730
–
730
5.3
2016
761
5.3
87.7%
87.7%
53
56.3
96
63
102
67
9.9
51.6%
12
11.3
6
49.6
71
50.2
114
60
87
–
–
–
–
–
17
55.2
96.2%
94.4%
11
124
1,040
1,236
20
29
116
1,011
1,242
13
Change
%
NA
1%
29%
NA
-1%
20%
Change
%
-15%
3%
0%
-25%
12%
-16%
5%
17%
NA
NA
NA
NA
NA
-63%
-10%
2%
-62%
7%
3%
-1%
54%
Albazino
Mayskoye
2017
154
58.3
2016
149
52.1
%
change
3%
12%
2017
6
49.6
2016
17
55.2
96.4% 94.5%
2% 96.2% 94.4%
%
change
-63%
-10%
2%
Total
2016
166
52.5
%
change
-3%
11%
2017
160
58.0
Total gold equivalent production, Koz
268
244
10%
11
29
-62%
280
273
3%
OMOLON
Birkachan
Tsokol
Sopka
Oroch
Olcha
Total
MINING
2017
2016
%
change
2017
2016
change
2017 2016
%
%
change 2017
%
2016
change
2017
2016
%
change
2017
2016
change
%
Stripping, Kt
– 2,548 -100%
–
– NA 6,442
– NA 109 4,552 -98% 184 1,088 -83% 6,735 8,188 -18%
Underground
development,
m
4,526 2,286 98% 3,786 3,934
-4%
–
– NA
–
– NA 3,164
125 2431%
11,476 6,345 81%
Ore mined, Kt
114 961 -88% 153
103 48% 261
– NA
81 936 -91%
83
232 -64% 692 2,233 -69%
open-pit
– 893 -100%
–
– NA 261
– NA
81 936 -91%
73
232 -69% 415 2,061 -80%
underground 114
68 67% 153
103 48%
–
– NA
–
– NA
10
–
NA 277
172 61%
2.0 275% 10.4
12.7 -18% 3.7
– NA
2.3
2.9 -18%
5.6
6.0
-7% 5.9
3.3 78%
8 519%
–
– NA 117
– NA 164
134 22%
17
17
-3% 73
61 19%
Metal in
ore mined
(grades), g/t
gold
silver
7.6
48
PRODUCTION
Kubaka mill
Ore processed, Kt
Metal in ore processed (grades), g/t
gold
silver
Recoveries
gold
silver
Production
gold, Koz
silver, Moz
Birkachan heap leach
Ore stacked, Kt
Gold grade, g/t
Gold recovery
Gold production, Koz
Total gold equivalent, Koz
Total cash costs, US$/GE oz
All-in sustaining cash costs, US$/GE oz
Adjusted EBITDA, US$m
2017
2016
Change
%
858
6.7
90
94.2%
83.9%
172
2.1
459
1.3
90.1%
4
202
652
858
120
840
5.9
90
92.2%
85.5%
144
2.1
–
–
–
–
170
503
675
116
2%
13%
-1%
2%
-2%
20%
-1%
NA
NA
NA
NA
19%
30%
27%
3%
172
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 173
OPERATIONAL STATISTICS
VORO
MINING
Stripping, Kt
Ore mined, Kt
oxidised
primary
Gold grade in ore mined, g/t
oxidised
primary
2017
2016
10,250
10,490
1,553
377
1,175
1.4
3.4
1,308
260
1,048
1.9
4.0
Total
Change
%
-2%
19%
45%
12%
-24%
-16%
Voro CIP
Voro heap leach
PRODUCTION
2017
2016
change
%
Ore processed, Kt
1,002
1,001
0%
2017
358
2016
319
change
%
2017
2016
change
%
12%
1,360
1,321
3%
Metal in ore processed
(grades), g/t
gold
Recoveries
gold
Production
gold, Koz
silver, Moz
Gold equivalent, Koz
Total cash cost, US$/GE oz
All-in sustaining cash costs,
US$/GE oz
Adjusted EBITDA, US$m
4.0
4.2
-5%
1.2
1.6
-25%
3.3
3.6
-9%
80.1%
78.3%
2%
73.0%
73.3%
0%
102
0.1
103
110
0.1
111
-8%
9%
-8%
17
0.01
17
17
0.01
17
-3%
47%
-2%
118
0.1
120
383
532
97
127
0.1
129
322
419
113
-7%
11%
-7%
19%
27%
-14%
OKHOTSK
MINING
Stripping, Kt
Underground development, m
Ore mined, Kt
Metal in ore mined (grades), g/t
gold
silver
PRODUCTION
Ore processed, Kt
Metal in ore processed
(grades), g/t
gold
silver
Recoveries
gold
silver
Production
gold, Koz
silver, Moz
Gold equivalent, Koz
Total cash cost, US$/GE oz
All-in sustaining cash costs,
US$/GE oz
Adjusted EBITDA, US$m
Khakanja
Ozerny
Avlayakan
Svetloye
Total
2017
2016
change
2017
2016
change
2017
2016
change
2017
2016
change
2017
2016
change
%
%
%
%
%
–
–
–
–
–
– NA
– NA
– NA
– NA
– NA
–
–
–
–
–
– NA
–
– NA
421
972 -57% 421
972 -57%
– NA 5,179 4,637 12%
–
– NA 5,179 4,637 12%
– NA
137
141 -3% 1,246 1,336
-7% 1,383 1,476 -6%
– NA 15.9 15.9 0% 3.7
2.6 42% 4.9
3.9 26%
– NA
147
141 4%
–
– NA
15
13
9%
Okhotsk CIP
Svetloye heap leach
Total
2017
623
2016
627
change
%
2017
-1%
1,054
2016
428
change
%
146%
2017
2016
change
%
1,676
1,055
59%
4.7
111
4.8
85
97.0%
78.6%
95.7%
78.9%
90
1.7
111
702
869
58
92
1.3
108
648
750
71
-2%
30%
1%
0%
-1%
25%
3%
8%
16%
-18%
4.4
–
3.6
–
80.7%
80.8%
–
–
106
–
106
313
426
101
23
–
23
419
752
18
21%
NA
0%
NA
359%
NA
359%
-25%
-43%
461%
4.5
41
4.3
51
5%
–19%
196
1.7
217
115
1.3
131
71%
25%
65%
174
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
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ANNUAL REPORT & ACCOUNTS 2017 175
OPERATIONAL STATISTICS
VARVARA
MINING
Stripping, Kt
Ore mined, Kt
float ore
leach ore
Metal in ore mined (grades)
gold, g/t — float ore
gold, g/t — leach ore
copper, % (float ore)
1.0
1.0
1.1
0.8
0.5%
0.4%
2017
389
2016
372
1.9
0.6%
1.8
0.3%
64.3%
83.1%
65.8%
72.5%
9
1,411
16
10
839
14
PRODUCTION
Ore processed, Kt
Metal in ore processed
(grades)
gold, g/t
copper, %
Recoveries
gold
copper
Production
gold, Koz
copper, t
Gold equivalent, Koz
Total cash cost, US$/GE oz
All-in sustaining cash costs,
US$/GE oz
Adjusted EBITDA, US$m
Varvara
Komar
Total
2017
2016
9,588
18,646
1,261
2,820
364
897
156
2,664
change
%
-49%
-55%
134%
-66%
-15%
16%
26%
2017
2016
14,201
2,939
1,982
–
1,982
0.0
1.5
0.0%
383
–
383
–
1.5
–
change
%
383%
417%
NA
417%
2017
2016
23,789
21,584
3,243
3,203
364
156
2,878
3,047
NA
3%
NA
1.0
1.4
1.1
0.9
0.5%
0.4%
Varvara – flotation
Varvara – leaching
Total
change
%
2017
2016
change
%
2017
2016
change
%
10%
1%
134%
-6%
-15%
48%
26%
change
%
5%
2,890
2,748
5%
3,269
3,119
5%
9%
91%
-2%
15%
-10%
68%
12%
1.4
–
1.0
–
83.4%
79.7%
–
–
114
–
114
70
–
70
48%
NA
5%
NA
62%
NA
62%
1.5
1.1
41%
123
1,411
130
701
952
68
80
839
85
780
975
36
53%
68%
54%
-10%
-2%
89%
KAPAN
MINING
Stripping, Kt
Underground development, m
Ore mined, Kt
Metal in ore mined (grades)
gold, g/t
silver, g/t
copper, %
zinc, %
PRODUCTION
Ore processed, Kt
Metal in ore processed (grades)
gold, g/t
silver, g/t
copper, %
zinc, %
Recoveries
gold
silver
copper
zinc
Production
gold, Koz
silver, Moz
copper, t
zinc, t
Gold equivalent, Koz
Total cash costs, US$/GE oz
All-in sustaining cash costs, US$/GE oz
Adjusted EBITDA, US$m
2017
–
2016
–
16,937
9,493
527
2.2
39
0.30%
1.31%
2017
530
2.2
39
0.30%
1.30%
83.6%
83.0%
92.3%
89.1%
28
0.5
1,304
4,794
50
871
1,292
20
287
2.0
41
0.28%
1.42%
2016
293
2.0
40
0.26%
1.38%
82.4%
81.5%
90.6%
89.4%
14
0.3
615
2,888
26
900
1,264
Change
%
NA
78%
84%
10%
-5%
10%
-8%
Change
%
81%
10%
-5%
14%
-6%
1%
2%
2%
-0%
105%
82%
112%
66%
94%
-3%
2%
6
233%
176
POLYMETAL INTERNATIONAL PLC
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ANNUAL REPORT & ACCOUNTS 2017 177
RESERVES AND RESOURCES
MINERAL RESOURCES AND ORE RESERVES AS AT 1 JANUARY 20181
ORE RESERVES AS AT 1 JANUARY 20181
MINERAL RESOURCES
Measured
Indicated
Measured + Indicated
Inferred
Measured + Indicated + Inferred
ORE RESERVES
Proved
Probable
Proved + Probable
Tonnage
Mt
Grade
GE, g/t
Content
GE, Moz
20.2
2.7
30.7
50.9
69.1
120.0
61.0
106.0
167.0
3.8
3.3
5.7
4.7
2.6
4.7
3.9
1.8
3.7
5.5
12.8
18.2
5.0
15.9
20.9
1 Mineral resources and ore reserves in accordance with the JORC Code (2012). Mineral resources are additional to Ore reserves. Mineral resources and Ore reserves for Lead are
not presented due to their immateriality and are not included in the calculation of the gold equivalent. PGM Mineral resources are presented separately and are not included in the
calculation of the gold equivalent. Any discrepancies in calculations are due to rounding.
Tonnage
Grade
Content
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
PROVED
Standalone mines
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Varvara hub
Varvara3
Komar
Maminskoye4
Dolinnoye5
Omolon hub
Birkachan
Sopka Kvartsevaya
Oroch7
Olcha
Dalneye8
Tsokol Kubaka
Burgali9
Voro hub
Voro
Okhotsk hub
Svetloye
Avlayakan
Khakanja11
Armenia
Kapan12
Lichkvaz13
Development and
exploration projects
Nezhda15
Veduga16
Kutyn17
Total Proved
6,690
4,570
2,120
7,040
4,770
1,760
160
350
20,800
12,300
3,540
4,810
150
9,250
3,910
3,060
470
50
1,090
290
380
10,210
10,210
3,120
2,190
150
780
750
220
530
3,150
1,350
220
1,580
61,010
3.9
6.8
0.5
1.3
–
0.7
1.0
1.4
1.9
1.1
2.0
1.6
3.7
8.9
1.7
6.2
7.9
1.8
2.8
13.7
1.1
2.9
3.2
2.3
3.3
–
–
251
286
335
435
–
–
–
–
6
68
157
16
28
6
31
3
3
117
64
42
25
25
–
–
–
–
–
–
–
–
0.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.5
–
–
–
–
4.8
3.9
6.8
4.0
3.4
5.1
4.5
6.2
1.3
1.1
1.4
1.9
1.1
2.7
2.1
2.3
5.5
9.1
1.9
6.3
8.2
1.8
1.8
3.1
2.8
15.2
1.7
4.4
5.8
4.0
3.6
4.2
2.3
3.3
2.6
1,035
571
465
153
72
72
–
8
843
379
165
295
5
696
255
159
56
14
59
57
95
575
575
291
195
68
28
75
20
55
361
174
17
169
–
–
–
61,391
38,598
16,194
1,714
4,884
–
–
–
–
–
11,240
777
6,648
2,367
26
991
56
375
995
995
2,401
217
576
1,608
714
289
425
1,099
1,099
–
–
–
–
–
–
–
–
–
–
8.4
8.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.7
1.1
1.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.3
5.3
–
–
–
–
1,035
571
465
907
527
288
23
70
896
431
165
295
5
804
263
220
83
15
67
57
98
585
585
313
195
75
43
107
40
67
368
182
17
169
4,028
77,841
11.1
5.3
5,015
178
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ANNUAL REPORT & ACCOUNTS 2017 179
RESERVES AND RESOURCES
ORE RESERVES AS AT 1 JANUARY 20181 CONTINUED
Tonnage
Grade
Content
Tonnage
Grade
Content
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
PROBABLE
Standalone mines
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Perevalnoye2
Varvara hub
Varvara3
Komar
Maminskoye4
Dolinnoye5
Tarutin6
Omolon hub
Birkachan
Sopka Kvartsevaya
Olcha
Tsokol Kubaka
Burgali9
Voro hub
Voro
North Kaluga10
Okhotsk hub
Svetloye
Avlayakan
Armenia
Kapan12
Lichkvaz13
15,090
10,560
4,530
6,540
5,050
750
170
220
350
37,870
5,370
19,300
9,890
2,420
890
1,910
1,210
120
230
190
160
450
130
320
3,500
3,440
60
4,390
3,850
540
Development and
exploration projects
36,200
Kyzyl project
(Bakyrchik)14
Nezhda15
Veduga16
Kutyn17
29,150
1,380
3,600
2,070
Total Probable
105,950
5.0
6.4
0.5
1.7
–
0.9
–
1.1
1.8
1.9
2.5
0.1
8.8
6.2
8.8
6.2
4.7
2.3
6.7
3.3
12.9
2.1
3.2
7.7
3.7
5.0
3.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
337
268
307
348
428
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
13
1.6
24
193
15
10
28
5
101
4
83
40
18
–
15
–
–
–
–
–
–
–
–
5.8
5.6
–
–
0.4
0.2
–
–
–
–
–
–
1.6
–
–
–
–
–
5.4
5.0
6.4
4.7
4.5
5.3
4.1
5.3
5.9
1.9
1.8
1.8
1.9
2.5
3.3
8.3
9.1
8.3
9.0
6.3
5.0
13.0
2.4
17.1
3.5
3.3
13.9
4.1
4.2
3.8
2,640
1,701
939
132
83
42
–
6
–
2,145
196
1,135
618
193
3
491
339
24
65
39
24
80
10
70
385
360
26
311
254
57
–
–
–
70,197
54,694
6,506
1,662
2,476
4,860
359
–
–
–
–
359
2,000
937
745
113
61
144
1,074
19
1,056
594
430
164
5,220
4,905
315
7.1
8,210
666
7,254
164
575
217
–
666
–
–
7.7
3.8
5.0
3.3
4.7
PROVED + PROBABLE
Standalone mines
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Perevalnoye2
Varvara hub
Varvara3
Komar
Maminskoye4
Dolinnoye5
Tarutin6
Omolon hub
Birkachan
Sopka Kvartsevaya
Oroch7
Olcha
Dalneye8
Tsokol Kubaka
Burgali9
21,780
15,130
6,650
13,580
9,820
2,510
330
570
350
58,670
17,670
22,840
14,700
2,570
890
11,160
5,120
3,180
470
280
1,090
480
540
4.7
6.6
0.5
1.4
–
0.8
–
1.0
1.8
1.9
2.4
0.1
3.6
1.8
3.7
8.8
1.7
6.2
7.0
–
–
295
281
321
401
428
–
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
13
1.6
10
72
157
15
28
8
30
–
–
–
–
–
–
–
5.2
4.7
6.6
4.3
4.0
5.2
4.3
5.9
5.9
1.7
1.3
1.8
1.9
2.4
3.3
3.7
3.7
2.5
5.5
9.0
1.9
6.3
7.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34.0
19.6
–
–
–
14.4
–
–
–
–
–
–
18.9
–
18.9
–
–
–
17.7
16.3
1.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18.1
–
18.1
–
–
–
62.4
62.4
–
–
–
–
–
2,640
1,701
939
982
727
129
22
38
67
2,357
317
1,135
618
193
93
512
349
32
67
39
25
188
10
179
388
361
27
585
518
67
8,214
7,254
168
575
217
3,675
2,272
1,404
–
–
–
285 131,588
93,293
22,700
3,376
7,360
4,860
359
–
–
–
–
156
114
–
15
–
2,989
575
1,300
913
198
3
–
–
–
–
–
–
–
–
–
42.4
28.0
–
–
–
359
14.4
1,186
13,240
594
183
56
80
59
95
119
1,714
7,393
2,367
139
991
117
519
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,675
2,272
1,404
1,890
1,253
417
45
108
67
3,253
748
1,300
913
198
93
1,316
611
253
83
81
67
97
123
14,393
80,110
70.5
80.5
15,867
180
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ANNUAL REPORT & ACCOUNTS 2017 181
RESERVES AND RESOURCES
ORE RESERVES AS AT 1 JANUARY 20181 CONTINUED
MINERAL RESOURCES AS AT 1 JANUARY 20181
Tonnage
Grade
Content
Tonnage
Grade
Content
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
PROVED + PROBABLE (continued)
Voro hub
Voro
North Kaluga10
Okhotsk hub
Svetloye
Avlayakan
Khakanja11
Armenia
Kapan12
Lichkvaz13
10,660
10,340
320
6,620
5,630
210
780
5,140
4,070
1,070
Development and
exploration projects
39,350
Kyzyl project
(Bakyrchik)14
Nezhda15
Veduga16
Kutyn17
29,150
2,730
3,820
3,650
Total Probable
166,960
1.8
6.7
3.1
13.5
1.1
2.1
3.2
7.7
3.8
4.8
3.3
3
101
4
107
64
40
21
–
20
–
–
–
5.8
–
–
–
0.4
0.3
–
–
–
–
–
5.6
–
–
–
1.7
–
–
–
–
–
2.3
1.8
17.1
3.3
3.1
14.8
1.7
4.2
4.3
3.9
655
585
70
676
555
93
28
385
274
111
2,070
1,014
1,056
2,995
647
740
1,608
5,934
5,194
740
6.8
8,571
1,764
7,254
338
592
386
–
1,764
–
–
7.7
4.0
4.8
3.3
3.9
18.9
–
18.9
–
–
–
–
20.3
17.4
2.9
–
–
–
–
–
18.1
–
18.1
–
–
–
–
67.7
67.7
–
–
–
–
–
–
774
595
179
702
556
102
43
692
558
134
8,582
7,254
350
592
386
18,422
157,951
81.6
85.8
20,883
1 Ore reserves in accordance with the JORC Code (2012). Discrepancies in calculations are due to rounding.
2 Initial estimate prepared by Polymetal as at 01.01.2016. Price: Ag = US$15/oz. and Pb = US$1,700/t. Revised estimate was not performed due to lack of material changes.
3 Cu grade in Ore reserves only represents average grade in flotation feed. Ore reserves for flotation: 1.8 Mt Proved and 3.2 Mt Probable.
4 Initial estimate prepared by Polymetal as at 01.01.2014. Price: Au = US$1,300/oz. Revised estimate was not performed due to lack of material changes.
5 Initial estimate prepared by CSA as at 28.07.2016. Price: Au = US$1,100/oz. Revised estimate was prepared by Polymetal as at 01.01.2018 (accounts only for depletion and change in
ownership). Ore reserves are presented in accordance with the Company’s ownership of 50%.
6 Initial estimate prepared by Polymetal as at 01.01.2016. Price: Au = US$1,100/oz, Ag = US$15/oz and Cu = US$5,000/t. Revised estimate was prepared by Polymetal as at 01.01.2018
(accounts for change in ownership).
7 Stockpiled Ore reserves.
8 Stockpiled Ore reserves.
9 Initial estimate prepared by Polymetal as at 01.01.2016. Price: Au = US$1,100/oz and Ag = US$15/oz. Revised estimate was not performed due to lack of material changes.
10 Initial estimate prepared by Polymetal as at 01.07.2014. Price: Au = US$1,300/oz, Ag = US$20/oz, Cu = US$7,000/t and Zn = US$1,700/t. Revised estimate was not performed due to
lack of material changes.
11 Stockpiled Ore reserves.
12 Initial estimate prepared by Polymetal as at 01.01.2018.
13 Initial estimate prepared by Polymetal as at 01.01.2018.
14 Initial estimate prepared by RPA Inc. as at 01.01.2015. Price: Au = US$1,200/oz. Revised estimate was not performed due to lack of material changes.
15 Initial estimate prepared by Polymetal as at 01.07.2017. Ore reserves are presented in accordance with the Company’s ownership equal to 17.66%.
Revised estimate was not performed due to lack of material changes.
16 Ore reserves are presented in accordance with the Company’s ownership equal to 42.65%.
17 Initial estimate prepared by Snowden as at 01.01.2015. Price: Au = US$1,300/oz. Only Ore reserves estimate for Heap Leach. Revised estimate was not performed due to
lack of material changes.
MEASURED
Standalone mines
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Varvara hub
Varvara4
Komar
Maminskoye5
Omolon hub
Birkachan
Sopka Kvartsevaya
Oroch8
Olcha
Tsokol Kubaka
Voro hub
Voro
Okhotsk hub
Svetloye
Avlayakan
Ozerny15
Khakanja16
Armenia
Kapan
Lichkvaz
3,740
2,540
1,200
1,470
740
610
100
20
11,170
10,150
40
980
950
40
210
480
150
70
690
690
670
230
130
270
40
410
20
390
Development and
exploration projects
Nezhda20
Veduga21
Kutyn22
1,130
210
180
740
Total Measured
20,230
1.7
12.2
0.9
1.8
–
1.1
0.7
1.5
1.4
12.7
1.5
1.2
4.1
10.4
2.5
1.4
10.0
1.7
0.7
5.2
3.5
5.4
0.4
4.1
–
–
441
327
976
626
–
–
–
39
73
51
13
11
5
2
84
26
73
74
28
13
–
–
–
–
–
–
–
–
0.4
–
–
–
–
–
–
–
–
–
–
–
–
0.9
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4.1
–
–
–
–
5.1
1.7
12.2
6.7
6.0
6.2
13.0
9.0
1.2
1.1
1.5
1.4
3.3
13.1
2.2
1.8
4.2
10.5
2.6
2.6
3.5
1.4
11.0
1.9
1.4
4.6
10.0
4.3
3.8
5.4
0.4
4.1
2.7
616
143
473
58
21
36
–
1
268
222
2
44
86
14
10
19
19
23
56
56
68
11
42
14
1
48
3
45
136
37
3
97
–
–
–
20,661
10,503
6,413
3,285
458
–
–
–
–
1,421
45
492
795
65
24
106
106
696
14
355
226
101
397
38
359
87
87
–
–
–
–
–
–
–
–
–
–
23.6
23.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.3
0.2
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.6
0.6
–
–
–
–
–
616
143
473
316
144
122
44
7
414
368
2
44
101
15
14
28
20
23
57
57
75
11
46
17
2
60
5
55
136
37
3
97
1,335
23,367
24.9
0.6
1,776
182
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 183
RESERVES AND RESOURCES
MINERAL RESOURCES AS AT 1 JANUARY 20181 CONTINUED
Tonnage
Grade
Content
Tonnage
Grade
Content
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
INDICATED
Standalone mines
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Primorskoye3
Varvara hub
Varvara4
Komar
Maminskoye5
Dolinnoye6
Tarutinskoye7
Omolon hub
Birkachan
Sopka Kvartsevaya
Olcha
Tsokol-Kubaka
Irbychan10
Nevenrekan12
Voro hub
Voro
Tamunier
Saum13
Okhotsk hub
Svetloye
Avlayakan
Maimakan-Kundumi
Armenia
Kapan
Lichkvaz
Development and
exploration projects
Kyzyl project
(Bakyrchik)19
Nezhda20
Kutyn22
2,240
1,520
720
1,070
390
70
130
10
470
16,150
10,050
3,500
1,150
850
600
570
90
70
70
30
240
70
3,320
340
2,190
790
720
530
20
170
650
320
330
5,930
2,740
1,120
2,070
Total Indicated
30,650
5.2
10.9
0.6
2.4
–
1.5
4.2
1.2
2.0
1.5
1.9
0.1
10.4
4.7
8.1
5.9
8.9
7.1
2.5
3.4
2.5
2.0
16.9
13.8
2.9
3.7
6.2
4.9
4.2
–
–
383
234
750
502
1,238
–
–
–
–
6
21
187
20
9
189
784
5
10
52
3
47
35
57
21
–
17
–
–
–
–
–
–
–
–
0.5
–
–
–
1.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
3.7
–
–
–
0.7
0.3
–
–
–
–
–
–
2.4
–
–
–
–
7.0
5.2
10.9
12.4
5.1
5.5
10.0
7.9
20.0
1.7
1.5
2.0
1.5
1.9
2.5
10.3
10.6
6.7
8.3
6.0
11.3
15.1
4.4
2.6
3.5
7.8
5.3
2.0
17.4
14.2
5.2
6.1
4.4
6.2
5.0
4.2
3.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
504
253
251
77
8
6
–
1
62
726
398
220
55
52
2
–
–
–
27,457
4,814
555
3,251
226
18,610
120
–
–
–
–
–
–
–
–
–
–
–
–
–
24.2
16.7
–
–
–
120
7.6
147
3,782
28
11
18
6
68
16
335
28
242
65
119
34
10
76
69
30
39
56
430
45
9
1,439
1,803
2,067
51
690
1,325
261
44
27
190
811
588
222
545
176
279
–
597
–
–
–
–
–
–
–
–
16.1
29.1
–
–
–
–
16.1
29.1
–
–
–
–
3.1
2.1
1.0
–
–
–
–
–
–
–
–
7.6
7.6
–
–
–
–
–
504
253
251
425
64
13
43
4
301
877
501
220
55
52
49
189
29
15
19
6
86
35
471
28
245
197
122
34
10
78
109
63
47
1,004
545
179
279
2,977
35,094
43.4
36.7
3,701
5.3
1,000
597
MEASURED + INDICATED
Standalone mines
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Primorskoye3
Varvara hub
Varvara4
Komar
Maminskoye5
Dolinnoye6
Tarutinskoye7
Omolon hub
Birkachan
Sopka Kvartsevaya
Oroch8
Olcha
Tsokol-Kubaka
Irbychan10
Nevenrekan12
Voro hub
Voro
Tamunier
Saum13
Okhotsk hub
Svetloye
Avlayakan
Ozerny15
Maimakan-Kundumi
Khakanja16
Armenia
Kapan
Lichkvaz
Development and
exploration projects
Kyzyl project
(Bakyrchik)19
Nezhda20
Veduga21
Kutyn22
5,980
4,060
1,920
2,540
1,130
680
230
30
470
27,320
20,200
3,540
2,130
850
600
1,520
130
280
480
220
100
240
70
4,010
1,030
2,190
790
1,390
760
150
270
170
40
1,060
340
720
7,060
2,740
1,330
180
2,810
3.0
11.7
0.8
1.9
–
1.2
4.2
1.0
2.0
1.4
1.9
0.1
11.1
2.3
1.2
5.3
9.1
8.9
7.1
2.5
3.4
2.5
1.8
10.8
1.7
13.8
0.7
3.0
3.6
6.2
5.0
0.4
4.2
–
–
421
317
849
579
1,238
–
–
–
–
–
–
–
–
–
–
–
0.4
–
–
–
6.2
1.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.0
3.7
–
–
–
–
–
–
–
–
–
–
0.7
0.3
2.5
–
–
–
–
–
–
–
–
–
1,120
396
724
134
28
42
–
1
62
994
620
222
99
52
2
–
–
–
48,118
15,317
6,969
6,537
685
18,610
120
–
–
–
–
–
–
–
–
–
–
–
–
–
47.8
40.2
–
–
–
120
7.6
233
5,203
5.8
3.0
11.7
9.1
5.7
6.1
11.3
8.6
20.0
1.5
1.3
2.0
1.4
1.9
2.5
5.9
11.4
3.3
1.8
5.5
9.2
11.3
15.1
4.1
2.6
3.5
7.8
4.4
1.8
11.8
1.9
14.2
1.4
5.0
6.3
4.4
43
21
19
38
29
68
16
391
84
242
65
187
44
52
14
76
1
117
33
84
101
922
795
110
33
1,439
1,803
2,173
157
690
957
58
381
226
190
101
1,208
626
581
5.0
1,135
684
6.2
5.1
0.4
4.2
545
212
3
376
–
684
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16.1
29.1
–
–
–
–
–
–
–
–
–
–
4.4
2.2
2.2
–
–
–
–
–
–
–
–
–
–
–
8.2
8.2
–
–
–
–
–
–
1,120
396
724
742
209
135
87
10
301
1,291
868
222
99
52
49
290
44
30
28
39
29
86
35
528
86
245
197
197
44
56
17
78
2
169
68
102
1,140
545
217
3
376
1,325
16.1
29.1
26
103
51
16
10
189
784
5
10
52
2
80
26
35
73
58
25
–
16
–
–
184
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 185
Total Measured +
Indicated
50,880
3.3
4,312
58,461
68.3
37.4
5,477
RESERVES AND RESOURCES
MINERAL RESOURCES AS AT 1 JANUARY 20181 CONTINUED
Tonnage
Grade
Content
Tonnage
Grade
Content
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
INFERRED
Standalone mines
13,690
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Perevalnoye2
Primorskoye3
Varvara hub
Varvara4
Komar
Dolinnoye6
Tarutin7
Omolon hub
Sopka Kvartsevaya
Olcha
Tsokol Kubaka
Burgali9
Irbychan10
Yolochka11
Nevenrekan12
Voro hub
Tamunier
Saum13
Pescherny14
Okhotsk hub
Svetloye
Avlayakan
Levoberezhny17
Kirankan18
Maimakan-Kundumi
Armenia
Kapan
Lichkvaz
4,240
9,450
1,240
690
290
110
100
20
30
15,920
8,460
2,020
4,990
450
690
40
140
80
50
20
240
120
2,610
480
50
2,080
3,102
10
10
2,800
142
140
8,900
8,020
880
Development and
exploration projects
22,980
Kyzyl project
(Bakyrchik)19
Nezhda20
Veduga21
Kutyn22
Total Inferred
11,420
8,580
870
2,110
69,132
6.1
10.3
1.3
1.6
–
0.6
–
1.8
1.4
2.4
2.7
0.1
2.3
11.0
8.0
11.9
19.3
11.1
8.6
3.2
1.4
6.7
6.8
28.6
4.0
6.5
13.7
2.9
4.5
7.0
4.9
5.8
4.0
–
–
705
430
772
558
564
787
–
–
–
11
90
39
16
15
265
10
861
4
33
–
4
84
13
8
27
62
37
–
10
–
–
–
–
–
–
–
–
–
–
0.7
–
–
1.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.8
2.6
–
–
–
–
–
–
–
–
–
–
–
–
0.7
0.4
2.3
–
9.0
6.1
10.3
9.0
9.6
7.3
10.3
7.7
7.7
11.8
2.2
1.7
2.4
2.7
3.5
11.8
3.3
11.4
8.2
12.0
22.6
11.2
17.3
6.1
3.3
5.7
6.7
4.8
6.8
29.6
4.2
6.7
14.0
6.0
6.1
5.5
3,964
839
3,125
47
29
15
–
2
–
1
967
374
159
432
2
221
3
48
20
21
10
85
33
501
50
2
449
466
3
8
–
–
–
25,161
15,723
3,971
2,722
1,737
379
629
167
–
–
–
167
3,928
123
169
41
26
141
73
3,355
123
69
55
–
1,392
2
24
365
1,208
30
60
866
739
128
39
119
17,063
16,012
1,052
5.9
4,337
2,845
–
–
–
–
–
–
–
–
7.0
4.9
5.8
4.0
5.7
2,562
1,340
162
273
–
2,845
–
–
MEASURED + INDICATED + INFERRED
Standalone mines3
Albazino
Mayskoye
Dukat hub
Dukat
Lunnoye
Goltsovoye
Arylakh
Perevalnoye2
Primorskoye3
Varvara hub
Varvara4
Komar
Maminskoye5
Dolinnoye6
Tarutinskoye7
Omolon hub
Birkachan
Sopka Kvartsevaya
Oroch8
Olcha
Tsokol Kubaka
Burgali9
Irbychan10
Yolochka11
Nevenrekan12
19,670
8,300
11,370
3,780
1,820
970
340
130
20
500
43,240
28,660
5,560
2,130
5,840
1,050
2,210
130
320
480
360
180
50
260
240
190
4.6
10.5
1.0
1.8
–
0.8
–
4.0
1.1
2.1
1.4
2.6
0.1
11.1
2.3
1.2
7.5
8.6
11.9
9.6
11.1
8.0
–
–
529
350
825
563
564
1,216
–
–
–
–
8
26
101
51
24
13
15
194
10
832
–
–
–
–
–
–
–
–
0.5
–
–
–
1.5
–
–
–
–
–
–
–
–
–
8.0
4.6
10.5
9.0
7.2
6.5
11.0
7.9
7.7
19.6
1.7
1.4
2.1
1.4
2.6
2.9
7.8
11.4
3.3
1.8
7.8
8.7
12.0
12.0
11.2
16.5
5,084
1,236
3,849
–
–
–
182
73,278
58
57
–
3
–
31,041
10,940
9,259
2,421
379
64
19,239
1,961
287
994
381
99
484
4
454
43
24
19
86
49
21
78
85
50
–
–
–
–
287
9,131
101
1,045
795
279
74
26
1,580
73
5,157
–
–
–
–
–
–
–
–
–
–
69.8
54.4
–
–
–
15.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,084
1,236
3,849
1,099
423
203
123
34
5
311
2,395
1,330
381
99
484
101
552
44
34
28
89
50
21
98
86
102
–
–
–
–
–
–
–
–
–
–
22.0
14.2
–
–
7.9
–
–
–
–
–
–
–
–
1.0
–
1.0
–
–
–
–
–
–
–
56.6
53.4
3.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.4
–
1.4
–
–
–
–
–
–
–
183.0
183.0
–
–
–
–
–
–
3,964
839
3,125
357
214
68
36
24
5
9
1,104
462
159
432
52
262
4
50
21
21
12
86
68
509
50
10
449
482
3
9
378
30
62
1,719
1,564
155
4,357
2,562
1,360
162
273
11,371
50,680
79.6
184.4
12,754
186
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 187
RESERVES AND RESOURCES
MINERAL RESOURCES AS AT 1 JANUARY 20181 CONTINUED
PGM MINERAL RESOURCES AS AT 1 JANUARY 20181
Tonnage
Grade
Content
Tonnage
Grade
Content
Kt
Au, g/t
Ag, g/t
Cu, % Zn, % GE, g/t Au, Koz Ag, Koz
Cu, Kt
Zn, Kt GE, Koz
Mt
Pd, g/t
Pt, g/t
Au, g/t
Cu, % PdEq2,g/t Pd, Moz Pt, Moz Au, Moz
Cu, Kt PdEq, Moz
MEASURED + INDICATED + INFERRED (continued)
Voro hub
Voro
Tamunier
Saum13
Pescherny14
Okhotsk hub
Svetloye
Avlayakan
Ozerny15
Khakanja16
Levoberezhny17
Kirankan18
Maimakan-Kundumi
Armenia
Kapan
Lichkvaz
Development and
exploration projects
Kyzyl project
(Bakyrchik)19
Nezhda20
Veduga21
Kutyn22
6,620
1,030
2,670
840
2,080
4,492
770
160
270
40
2,800
142
310
9,960
8,360
1,600
30,040
14,160
9,910
1,050
4,920
Total Measured +
Indicated + Inferred
120,012
2.5
3.4
2.5
6.7
1.9
11.9
1.7
0.7
4.0
6.5
13.8
2.9
4.1
6.8
4.9
4.9
4.1
5
9
51
–
2
80
26
73
13
8
31
62
32
–
11
–
–
–
–
2.0
–
–
–
–
–
–
–
–
–
–
3.6
–
–
–
–
–
–
–
–
0.7
0.3
2.3
–
–
–
–
–
–
–
–
–
4.9
2.6
3.4
7.6
6.7
4.7
1.9
12.8
1.9
1.4
4.2
6.7
14.1
5.9
6.1
5.0
892
84
292
67
449
653
47
60
14
1
365
30
136
983
771
212
–
2,349
60
406
226
101
1,208
39
310
18,271
16,638
1,633
5.7
5,473
3,529
6.8
5.0
4.9
4.1
3,107
1,552
165
649
–
3,529
–
–
2,296
17.1
30.5
1,037
157
759
–
–
–
–
1,380
17.1
30.5
86
296
207
449
679
47
65
17
2
378
30
140
1,889
1,632
257
5,497
3,107
1,576
165
649
–
–
–
–
–
–
–
–
–
61.0
55.6
5.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
191.3
191.3
–
–
–
–
–
–
4.7
15,682
109,141
147.9
221.8
18,231
1 Mineral resources are reported in accordance with the JORC Code (2012) and are additional to Ore reserves. Discrepancies in calculations are due to rounding.
2
Initial estimate prepared by Polymetal as at 01.01.2016. Price: Ag = US$15/oz, Pb = US$1,700/t. A revised estimate was not performed due to a lack of material changes.
3 Estimate prepared by CSA Global Pty Ltd as at 01.01.2017. Price: Au = US$1,250/oz, Ag = US$16 /oz. Revised estimate was not performed due to lack of material changes.
4 Cu estimate is listed for fresh ore and powder ore that has high Cu grade (total Mineral resources for fresh ore and powder ore with high Cu grade of 4.7 and 6.8 Mt of
5
6
7
ore respectively).
Initial estimate prepared by Polymetal as at 01.01.2014. Price: Au = US$1,300/oz. Revised estimate was not performed due to lack of material changes.
Initial estimate prepared by CSA as at 28.07.2016. Price: Au= US$1,100/oz. Revised estimate prepared by Polymetal as at 01.01.2018 (accounts only for depletion and change in
ownership). Mineral resources are presented in accordance with the Company’s ownership equal to 50%.
Initial estimate prepared by Polymetal as at 01.01.2016. Price: Au= US$1,100/oz, Ag = US$15/oz, Cu = US$5,000/t. Revised estimate was prepared by Polymetal as at 01.01.2018
(accounts only for change in ownership).
8 Stockpiled Ore reserves.
9 Estimate prepared by Polymetal as at 01.01.2016. Price: Au = US$1,100/oz, Ag = US$15/oz. Revised estimate was not performed due to lack of material changes.
10 Initial estimate prepared by Polymetal as at 01.01.2016. Price: Au = US$1,100/oz, Ag = US$15/oz. Revised estimate was not performed due to lack of material changes.
11 Initial estimate prepared by Polymetal as at 01.01.2016. Price: Au = US$1,100/oz, Ag = US$15/oz. Revised estimate was not performed due to lack of material changes.
12 Initial estimate prepared by Polymetal as at 01.01.2016. Price: Au = US$1,100/oz, Ag = US$15/oz. Revised estimate was not performed due to lack of material changes.
13 Initial estimate prepared by Polymetal as at 01.01.2017. Price: Au = US$1,200/oz, Ag = US$16/oz, Cu = US$4,500/t and Zn = US$1,900/t. Ore reserves are presented
in accordance with the Company’s ownership equal to 80%. Revised estimate was not performed due to lack of material changes.
14 Initial estimate prepared by Polymetal as at 01.01.2018.
15 Stockpiled Ore reserves.
16 Stockpiled Ore reserves.
17 Initial estimate prepared by Polymetal as at 01.01.2017. Revised estimate was not performed due to lack of material changes.
18 Estimate prepared by Snowden as at 01.07.2011. Price: Au = US$1,150/oz, Ag = US$18.5/oz. Revised estimate was not performed due to lack of material changes.
19 Estimate prepared by RPA Inc. as at 01.01.2015. Price: Au = US$1,200/oz. Revised estimate was not performed due to lack of material changes.
20 Initial estimate prepared by Polymetal as at 01.07.2017. Mineral resources are presented in accordance with Company’s ownership equal to 17.66%. A revised estimate
was not performed due to lack of material changes.
21 Mineral resources are presented in accordance with Company’s ownership equal to 42.65%.
22 Initial estimate for open pit prepared by Snowden, for underground by CSA Global Pty Ltd as at 01.01.2015. Price: Au = US$1,300/oz. Revised estimate was not performed
due to lack of material changes.
INDICATED
Viksha project3
Viksha
Kenti
Shargi
Total Indicated
INFERRED
Viksha project3
Viksha
Kenti
Shargi
Total Inferred
INDICATED + INFERRED
Viksha project3
Viksha
Kenti
Shargi
Total Indicated +
Inferred
27
–
–
27
52
98
36
186
79
98
36
213
0.6
–
–
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.6
0.2
–
–
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.1
–
–
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.1
0.10
–
–
0.10
0.09
0.11
0.08
0.10
0.10
0.11
0.08
0.10
1.4
–
–
1.4
1.3
1.3
1.3
1.3
1.4
1.3
1.3
1.3
0.5
–
–
0.5
1.0
1.9
0.7
3.6
1.5
1.9
0.7
4.2
0.1
–
–
0.1
0.3
0.6
0.2
1.1
0.4
0.6
0.2
1.4
0.1
–
–
29.6
–
–
0.1
29.6
0.2
0.4
0.1
0.7
0.3
0.4
0.1
49.5
109.6
31.7
190.8
79.1
109.6
31.7
0.9
220.6
1.3
–
–
1.3
2.3
4.3
1.5
8.1
3.6
4.3
1.5
9.5
1 Mineral resources are reported in accordance with the JORC Code (2012). Mineral resources are additional to Ore reserves. Discrepancies in calculations are due to rounding.
2 PdEq is calculated using the following formula: PdEq = Pd(g/t) + Pt(g/t) *1.57 + Au(g/t) * 1.61 + Cu(%) * 2.33.
3 Initial estimate prepared by AMC Consultants as at 01.03.2015 using COG (PdEq) = 0.5 g/t/. Revised estimate was not performed due to lack of material changes.
This estimate was prepared by employees of JSC Polymetal Management Company and JSC Polymetal Engineering, subsidiaries
of the Company, led by Mr Valery Tsyplakov, who assumes overall responsibility for the Mineral Resources and Ore Reserves Report.
Mr Tsyplakov is the employed full-time as the Managing Director of JSC Polymetal Engineering and has more than 17 years’ experience in
gold, silver and polymetallic mining. He is a Member of the Institute of Materials, Minerals & Mining (MIMMM), London, and a Competent
Person under the JORC Code.
Listed below are other Competent Persons employed by the Company that are responsible for relevant research on which the Mineral
resources and Ore reserves estimate is based:
• Geology and Mineral resources – Roman Govorukha, Head of Geologic Modelling and Monitoring Department, MIMMM, with 17 years’
relevant experience;
• Mining and Ore reserves – Igor Epshteyn, Head of Mining Process Department, FIMMM, with 36 years’ relevant experience;
• Concentration and Metals – Igor Agapov, Deputy Director of Science and Technology, MIMMM, with 20 years’ relevant experience.
All the above mentioned Competent Persons have sufficient experience that is relevant to the style of mineralisation and types of deposits
under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian
Code for Reporting of Exploration Results, Mineral resources and Ore reserves’ (JORC Code).
All Competent Persons have given their consent to the inclusion in the report of the matters based on their information in the form and
context in which it appears.
Metals prices used in estimating Mineral resources and Ore reserves are listed below (unless otherwise indicated in the footnotes):
Au = US$1,200/oz; Ag = US$16.0/oz; Cu = US$5,500/t; Zn = US$2,000/t.
Gold equivalent data is based on ‘Conversion ratios of metals into gold equivalent’ provided below. Lead Ore reserves and
Mineral resources have not been assessed due to immateriality and are not included in the calculation of the gold equivalent.
188
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 189
RESERVES AND RESOURCES
REPORTING OF METAL EQUIVALENTS
Gold equivalent conversion ratio
GE = Me/k
Where Me is the evaluated metal content (silver g/t, copper or zinc %)
Where k is the silver to gold equivalent conversion rate that is calculated considering the difference in metals value issuing the following formula:
For silver: k = ((Au price/31.1035 - (Au price /31.1035 - Treatment charge Au)*(Royalty Au)/100 - (Treatment charge Au))*(Recovery Au)/
((Ag price/31.1035 - (Ag price/31.1035 - Treatment charge Ag)*(Royalty Ag)/100 - (Treatment charge Ag))*(Recovery Ag)),
for copper or zinc k = 100*((Au price/31.1035) - (Au price/31.1035 - Treatment charge Au)*(Royalty Au)/100 - (Treatment change
Au))*(Recovery Au))/(((Me price) - (Me price - Treatment charge Me)*(Royalty Me)/100 - (Treatment charge Me))*Recovery Me)),
where Royalty is the mineral extraction tax at applicable rate, recovery – the life-of-mine expected recovery of the respective
metal in the processing technology applied.
Metal equivalent conversion ratios:
Deposit
Dukat
Lunnoye
Goltsovoye
Arylakh
Perevalnoye
Primorskoye
Varvara
Tarutin
Ore processing technology
Gravitational flotation
Cyanidation + Merrill Crowe process
Conventional flotation
Cyanidation + Merrill Crowe process
Conventional flotation
Conventional flotation
Powder ore with high copper content1
Primary ore with high copper content – conventional flotation
Primary ore – conventional flotation
Oxidised ore – conventional flotation
Birkachan
Cyanidation carbon-in-pulp
Sopka Kvartsevaya
Cyanidation + Merrill Crowe process
Heap leaching + carbon-in-colon
Oroch
Olcha
Dalneye
Heap leaching + Merrill Crowe process
Cyanidation + Merrill Crowe process
Cyanidation + Merrill Crowe process
Cyanidation + Merrill Crowe process
Heap leaching + Merrill Crowe process
Tsokol Kubaka
Cyanidation carbon-in-pulp
Burgali
Irbychan
Yolochka
Cyanidation + Merrill Crowe process
Cyanidation + Merrill Crowe process
Cyanidation carbon-in-pulp
Nevenrekan
Cyanidation + Merrill Crowe process
Voro
Heap leaching + Merrill Crowe process
North Kaluga
Conventional flotation
Cyanidation carbon-in-pulp
Tamunier
Saum
Svetloye
Avlayakan
Ozerny
Khakanja
Levoberezhnoye
Kirankan2
Conventional flotation
Conventional flotation
Heap leaching + Merrill Crowe process
Cyanidation + Merrill Crowe process
Cyanidation + Merrill Crowe process
Cyanidation + Merrill Crowe process
Cyanidation Сcarbon-in-pulp
Cyanidation + Merrill Crowe process
Maimakan-Kundumi
Cyanidation + Merrill Crowe process
Kapan
Lichkvaz
Nezhda
Conventional flotation
Conventional flotation
Gravitational flotation
1 This type of ore is currently not being processed, it is stockpiled and reflected only in Mineral Resources.
2 Silver to gold equivalent conversion ratios were not recalculated to deposits that were evaluated in 2011-2012.
190
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
k
Cu
Zn
0.52
0.52
0.53
0.53
0.68
0.60
7.76
3.54
0.60
0.70
1.70
Ag
85
75
75
79
73
78
94
94
97
103
86
141
88
87
86
125
97
115
80
91
98
393
97
91
199
67
479
83
108
105
88
60
86
83
81
147
GLOSSARY
ABBREVIATIONS AND UNITS OF MEASUREMENT
TECHNICAL TERMS
AGM
CIS
GE
IMN
JORC
JSC
LBMA
LTIP
NA
NM
PE
PGM
POX
SE
g/t
GJ
km
Koz
Kt
Ktpa
m
Moz
Mt
Mtpa
MWh
Annual General Meeting
Commonwealth of Independent States
gold equivalent
Indigenous Minorities of the North
Australasian Joint Ore Reserves Committee
joint stock company
London Bullion Market Association
Long-Term Incentive Programme
not applicable
not meaningful
platinum equivalent
platinum group metal
pressure oxidation
silver equivalent
gram per tonne
gigajoules
kilometres
thousand ounces
thousand tonnes
thousand tonnes per annum
metres
million ounces
million tonnes
million tonnes per annum
megawatt hour
Oz or oz
troy ounce (31.1035 g)
pp
t
tpd
percentage points
tonne (1,000 kg)
tonnes per day
Assay
A chemical test performed on a sample of any material to
determine the amount of valuable metals contained in the sample
Ag
Silver
Au
Gold
Carbon-in-leach or CIL
A technological operation in which slurry containing gold and
silver is leached by cyanide in the presence of activated carbon.
Gold is absorbed onto activated carbon in parallel with leaching
Carbon-in-pulp or CIP
A technological operation in which slurry containing gold and
silver is leached by cyanide initially without and subsequently
in the presence of activated carbon. Gold absorption onto
carbon starts only after preliminary leaching
Concentrate
A semi-finished product of mineral processing (flotation or gravity
separation) containing significantly more value per unit of weight
than ore and subject to further processing for the production
of metals or other substances in final useful form
Cu
Copper
Cut-off grade
The minimum grade at which mineralised material can be
economically mined and processed (used in the calculation
of ore reserves)leaching with cyanide as the leaching agent
Dilution
The share (percentage) of material below the cut-off grade that
is extracted together and irretrievably mixed with ore during mining.
All other things being equal, higher dilution leads to lower grade in
ore mined
Doré
One of the traditional end-products of a gold/silver mine; an
alloy containing 90% in sum of gold and silver as well as 10%
of impurities
Exploration
Activity ultimately aimed at discovery of ore reserves for exploitation.
Consists of sample collection and analysis, including reconnaissance,
geophysical and geochemical surveys, trenching, drilling, etc
Flotation
A technological operation in which ore-bearing minerals are separated
from gangue minerals in the slurry based on variance in the interaction
of different minerals with water. Particles of valuable concentrate are
carried upwards with froth and collected for further processing
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 191
GLOSSARY
TECHNICAL TERMS CONTINUED
Grade
The relative amount of metal in ore, expressed as grams per tonne
for precious metals and as a percentage for most other metals
Head grade
The grade of ore coming into a processing plant
Heap leach
A technological operation in which crushed material is laid on
a sloping, impervious pad where it is leached by cyanide solution
to dissolve gold and/or silver. Metals are subsequently recovered
from pregnant leach solution by CIC or the Merrill-Crowe process
Indicated resource
That part of a resource for which tonnage, grade and content can
be estimated with a reasonable level of confidence. It is based on
exploration, sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes. The locations are too widely or
inappropriately spaced to confirm geological and/or grade continuity
but are spaced closely enough for continuity to be assumed
Inferred resource
That part of a resource for which tonnage, grade and content can be
estimated with a low level of confidence. It is inferred from geological
evidence and assumed but not verified geological and/or grade
continuity. It is based on information gathered through appropriate
techniques from locations such as outcrops, trenches, pits,
workings and drill holes which may be limited or of uncertain
quality and reliability
In-fill drilling
A conventional method of detailed exploration on an already defined
resource or reserve, consisting of drilling on a denser grid to allow
more precise estimation of ore bodyparameters and location
Leaching
The process of dissolving mineral values from solid into liquid phase
of slurry
Measured resource
That part of a resource for which tonnage, densities, shape,
physical characteristics, grade and mineral content can be
estimated with a high level of confidence. It is based on detailed
and reliable exploration, sampling and testing information gathered
through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes. The locations are spaced
closely enough to confirm geological and grade continuity
Merrill-Crowe process
A technological operation for extraction of gold and/or silver after
cyanide leaching. In the first step slurry containing gold and/or silver
is separated into liquid and solid phases by washing the solids off in
countercurrent decantation thickeners. In the second step pregnant
leach solution (liquid phase of slurry) is filtered to remove impurities
and deaerated. Finally, gold and silver are deposited onto the solid
bed of claylike material where they replace zinc particles which pass
into a solution. Merrill-Crowe is preferentially used for silver-rich ores
Mill
A mineral processing plant
Mineralisation
A rock containing valuable components, not necessarily in
the quantities sufficient for economically justifiable extraction.
Consists of ore minerals and gangue
Open-pittable
Amenable for economically feasible mining by open-pit methods
Open-pit mine
A mine that is entirely on the surface. Also referred to as open-cut or
open-cast mine
Ore
The part of mineralisation that can be mined and processed profitably
Ore body
A spatially compact and geometrically connected location of ore
Ore mined
Ore extracted from the ground for further processing
Ore processed
Ore subjected to treatment in a mineral processing plant
Ore stacked
The ore stacked for heap leach operations
Oxidised ore
Ore in which both ore minerals and gangue are fully or partially
oxidised thus impacting its physical and chemical properties
and influencing the choice of a processing technology
POX or pressure oxidation
A technological operation in which slurry is subjected to high
pressure and high temperature in an autoclave with the goal to
destroy sulphide particles enveloping gold particles and make
slurry amenable to cyanide leaching
Resources
A concentration or occurrence of material of intrinsic economic
interest in or on the earth’s crust in such form, quality and quantity
that there are reasonable prospects for eventual economic
extraction. The location, quantity, grade, geological characteristics
and continuity of resources are known, estimated or interpreted from
specific geological evidence and knowledge. Resources are sub-
divided in order of increasing geological confidence, into inferred,
indicated and measured categories
SAG mill
A semi-autogenous grinding mill, generally used as a primary or
first stage grinding solution
Step-out exploration drilling
Holes drilled to intersect a mineralisation horizon or structure
along strike or down dip
Stope
A large underground excavation entirely within an ore body,
a unit of ore extraction
Stripping
The mining of waste in an open-pit mine
Tailings
Part of the original feed of a mineral processing plant that
is considered devoid of value after processing
Underground development
Excavation which is carried out to access ore and prepare it
for extraction (mining)
Waste
Barren rock that must be mined and removed to access
ore in a mine
Precipitate
The semi-finished product of mineral processing by Merrill-Crowe
process, normally containing very high concentrations of silver
and/or gold
Primary ore
Unoxidised ore
Probable reserves
The economically mineable part of an indicated (and in some
cases measured) resource, which has a lower level of confidence
than proved reserves but is of sufficient quality to serve as
the basis for a decision on the development of the deposit
Production
The amount of pure precious metals, measured in thousands
of ounces for gold, millions of ounces for silver and tonnes for
copper, produced following processing
Proved reserves
The economically mineable part of a measured resource, which
represents the highest confidence category of reserve estimate.
The style of mineralisation or other factors could mean that proved
reserves are not achievable in some deposits
Pt
Platinum
Reclamation
The restoration of a site after mining or exploration activity
is completed
Recovery or recovery rate
The percentage of valuable metal in the ore that is recovered
by metallurgical treatment in the final or semi-finished product
Refractory
A characteristic of gold-bearing ore denoting impossibility
of recovering gold from it by conventional cyanide leaching
Reserves
The economically mineable part of a measured and/or indicated
mineral resource. It takes into account mining dilution and losses.
Appropriate assessments and 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 reasonably be justified.
Reserves are subdivided in order of increasing confidence into
probable reserves and proved reserves
192
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017 193
SHAREHOLDER INFORMATION
As at 9 March 2018, the Company’s issued share capital consisted of 430,115,480 ordinary shares of no par value. The Company does not
hold any ordinary shares in treasury. The ordinary shares reflect 100% of the total issued share capital of the Company.
Substantial shareholdings as at 9 March 2018
In accordance with the FCA’s Disclosure and Transparency Rules (DTR 5), as at 9 March 2018 the Company received notification of the
following material interests in voting rights over the Company’s issued ordinary share capital (including qualifying financial instruments):
Powerboom Investments Limited
Fodina B.V.
Mr Alexander Nesis
Mr Petr Kellner
Public Joint-Stock Company ‘Bank Otkritie Financial Corporation’
–
Percentage
of issued share
capital
(%)
27.13%
12.69%
7.56%
6.54%
4.09%
3.95%
Number
of shares
116,672,537
54,590,404
32,525,673
28,115,959
17,600,082
17,000,000
Mr Alexander Mamut
Mr Nikolay Mamut, Mr Pyotr Mamut,
Miss Esfir Mamut
Mr Alexander Mosionzhik
Vitalbond Limited
Lynwood Capital Management Fund Limited
MBC Development Limited
Registrar
Computershare Investor Services
(Jersey) Limited
Queensway House
Hilgrove Street
St Helier
Jersey JE1 1ES
Channel islands
Auditors
Deloitte LLP
2 New Street Square
London EC4A 3BX
United Kingdom
Brokers
Morgan Stanley & Co.
International plc
25 Cabot Square
London E14 4QA
United Kingdom
RBC Europe Limited
Riverbank House
2 Swan Lane
London EC4R 3BF
United Kingdom
Panmure Gordon & Co
One New Change
London EC4M 9AF
United Kingdom
Legal counsels
Jersey legal advisors
to the Company
Carey Olsen
47 Esplanade
St Helier
Jersey JE1 0BD
Channel islands
194
POLYMETAL INTERNATIONAL PLC
ANNUAL REPORT & ACCOUNTS 2017
English and US legal advisors
to the Company
Freshfields Bruckhaus Deringer LLP
65 Fleet Street
London EC4Y 1HS
United Kingdom
Cypriot legal advisors
to the Company
Andreas M. Sofocleous & Co LLC
Proteas House
155 Makariou III Ave
Limassol 3026
Cyprus
Company offices
Registered office of the Company
44 Esplanade
St Helier
Jersey JE4 9WG
Channel Islands
+44 1534 504 000
Registered No. 106196
Limassol office (Cyprus)
Zinas Kanther and Origenous
Corner Street
Zinas Kanther Business
Center 3035
Limassol Cyprus
+357 25 558080
London office (UK)
1 Berkeley Street
London W1J 8DJ
United Kingdom
+44 20 7016 9503
St. Petersburg office (Russia)
JSC Polymetal
Office 1063
2 Prospect Narodnogo Opolcheniya
St. Petersburg 198216
Russian Federation
+7 812 334 3666
+7 812 677 4325
PolyArm LLC
2/1 Melik Adamyan street
Yerevan, 0010
Armenia
+374 285 59 051
Polymetal Eurasia LLP
33 Konaeva Street
Astana 010000
Republic of Kazakhstan
+7 7172 790548
+7 7057 463026
Company secretary
Tania Tchedaeva
Media contacts
FTI Consulting
Leonid Fink
Viktor Pomichal
+44 20 3727 1000
Investor relations
Evgenia Onuschenko
Maryana Nesis
Michael Vasiliev
+44 20 7016 9506 (UK)
+7 812 334 3666 (Russia)
ir@polymetalinternational.com
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Polymetal International plcThe EsplanadeSt HelierJersey JE4 9WGChannel IslandsRegistered No. 106196www.polymetalinternational.com