Polymetal decides to proceed with Kutyn project

The FTSE 100 company said the JORC-compliant ore reserves for Kutyn as at 1 October 2019 were estimated at 8.4 million tonnes of oxide ore, with an average grade of 3.0 grams per tonne, containing 0.812 million ounces of gold.

Conventional open-pit mining would begin with pre-stripping in the third quarter of 2021, with first ore mined in the first quarter of 2022.

Ore would be processed through the 1.3 million tonnes per annum heap leach facility followed by the Merrill-Crowe process, with average life-of-mine old grecovery put at 71%.

Life-of-mine gold production was expected to comprise 575,000 ounces, with average annual output from 2023 to 2028 estimated at roughly 90,000 ounces, with an average all-in sustaining cost of $590 per ounce.

First gold was expected to be produced in the second quarter of 2023.

Polymetal said it acquired the asset in February 2011 for $65.5m in shares, and subsequently spent $55m on exploration and site infrastructure between 2012 and the first half of 2020.

It said the remaining initial project capital expenditures from the second half of 2020 were estimated at $80m.

Polymetal said the project’s internal rate of return stood at 29% at $1,200 per ounce, rising to 42% at $1,500 per ounce.

The net present value was estimated at $79m and $157m at those two gold prices, respectively.

Mineral Resources of Kutyn, additional to ore reserves, as at 1 October 2019 amounted to 6.6 million tonnes of oxide and refractory ore for both open-pit and underground mining, with an average grade of 3.7 grams per tonne, representing 0.785 million ounces of gold contained.

The company said detailed in-house metallurgical studies confirmed the viability of processing refractory ore from Kutyn at the Albazino concentrator, with subsequent POX at Amursk.

A JORC-compliant estimate of refractory reserves was planned for the first quarter of 2023, following completion of the drilling campaign of 50 kilometres and the preparation of the feasibility study.

The asset's production and financial results would be reported as a part of the Albazino-Amursk segment, the board said.

Polymetal said the development of Kutyn would not result in changes to its current production and capital expenditure guidance.

It said incremental production from Kutyn would compensate for the decline at Albazino, where geotechnical conditions underground were described as “challenging”, with management deciding not to proceed with the project to double underground mining capacity to 1.2 million tonnes per annum.

A capital expenditure reduction, stemming from that decision, would balance increased spending at Kutyn.

Polymetal said the Albazino mill would continue to have 100% utilisation, thanks to the introduction of low-grade historic stockpiles into the feed.

“After thorough evaluation the Board has concluded that Kutyn belongs in Polymetal's asset portfolio,” said chief executive officer Vitaly Nesis.

“The key factors behind this decision are a quick and capital-light path to significant free cash flows as well as potential for a long mine life as a part of the Albazino hub.”

At 1024 BST, shares in Polymetal were down 0.86% at 1,677p.