Petropavlovsk returns to first-half profit despite lower gold sales

Petropavlovsk reported gold sales of 187,100 ounces in its first half on Wednesday, down 40% year-on-year, which it said was consistent with the decrease in total gold production during the period.

The FTSE 250 Russia-focussed gold miner said its average realised gold price increased 9% over the prior year for the six months ended 30 June to $1,795 per ounce, with “zero impact” from its hedging programme.

Group revenue was $351.9m, or 33% lower year-on-year, as the impact of lower sales was partially offset by higher gold prices and increased revenue from service divisions.

Underlying EBITDA slid 41% to $114.3m, in line with the reduction in sales volumes, as higher gold prices were offset by an increase in total cash costs during the period.

Petropavlovsk said its profit for the period totalled $48.9m, or one US cent per share, compared to a loss of $22m in the prior year, including some non-cash items.

Total cash costs for gold produced from own ore in the first half came in at $906 per ounce - 13% higher year-on-year - which was “well within” the company's 2021 cost guidance range.

The board said the increase was primarily influenced by lower grades and recoveries at the mines, as well as some rouble-denominated cost inflation and higher mining taxes where certain tax incentives expired.

All-in sustaining costs were 15% higher year-on-year at $1,404 per ounce, reflecting the increase in total cash costs, higher administrative costs, and the decrease in physical ounces sold in the first half, partially offset by a decrease in capitalised stripping at Malomir and Pioneer.

Capital expenditure for the period was $47.3m, which was 21% lower than the first half of 2020, reflecting the deferral of some expenses to the second half of the year.

“Petropavlovsk's financial performance in the first-half reflects the transitional period we are navigating as we shift to processing more refractory ore to supply our state-of-the-art POX plant with more of our own-mined reserves,” said chief executive officer Denis Alexandrov.

“In the first half of the year, own-mine production continued the downward trend that started in 2020, however we are now observing that trend reversing and expect higher production in the second half, supported by the recent launch of the Pioneer flotation plant.

“We therefore maintain our production guidance for the full year.”

Alexandrov said first-half revenue and EBITDA tracked the reduction in output, adding that while costs did rise, due in part to lower volumes, he was “pleased” that total cash costs for own-mined ore were in the lower half of the firm’s guidance range.

Additionally, he noted that the company generated cash flow from operations before changes in working capital of $113.7m in the period, along with a net profit of $48.9m, compared to a loss in the same period last year.

“Looking ahead, with the Pioneer flotation plant set to unlock the potential of the mine's refractory reserves in the second half of the year, we will see the POX hub operating at closer to full capacity as the year progresses.

“We also continue to progress the Malomir expansion, which will further increase our capacity to produce refractory ore concentrate for the POX plant when completed in the third quarter of 2022.

“At Albyn, we continue to see the harder, more challenging ore from Elginskoye that now feeds the plant limits the throughput and recoveries we can achieve.”

Furthermore, Denis Alexandrov said that based on Petropavlovsk’s experience mining the deposit, it was expecting exploration drilling being conducted at Elginskoye to confirm the deposit contained more refractory ore than previously estimated.

In light of that, the company was now studying options for adding flotation capacity to the Albyn hub, which would provide an additional source of concentrate for the POX hub.

“We are currently in the final stage of the operational review my team and I began earlier in the year - the drafting of a new strategy and development plan for the company that will help us realise the value of assets like Albyn and Elginskoye, support future production, and deliver improved returns to shareholders.”

At 0800 BST, shares in Petropavlovsk were down 0.46% at 20.9p.