Annual Report 2013 www.polymetalinternational.com
Robust strategy Resilient performance Annual Report 2013 Polymetal International plc Strategic report 1
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tements GR a RO l st l nce ices a a G P nci RON a in ST Senior managementSenior Corporate Governance report Committee Risk and Audit report Directors’ reportRemuneration responsibility statement Directors’ resources and Reserves information Shareholder Board of Directors of comprehensive income comprehensive of sheet balance Consolidated Consolidated statement of cash flows Consolidated statement of changes equityin Notes the to consolidated statements financial Independent auditor’s report auditor’s Independent income statement Consolidated Append F Govern Consolidated statement
Glossary
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We have achievedWe the objectives that setwe ourselves at the time our of and are now London listing in 2011, strongly positioned for the next stage development. our of > > > 76 81 86 88 102 103 152 159 162 74 75 107 108 109 110 106 106 t r epo
ic r ic g te Dukat hub Dukat hub Omolon Amursk POX hub Khakanja hub Khakanja Standalone exploration projects exploration Standalone
Albazino Varvara
Voro
Strategy update Performance highlights Development focus focus Operational focus Financial statement Chairman’s ChiefExecutive’s review model Business Operating review 22 Overview 27 30 33 36 38 Mayskoye 40 At a glanceAt Where we operate 42 44 46 review Financial Risks and risk management Stra Sustainability
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Resilient a trategic report Strategic Introduction Strategic report Polymetal at a glance Polymetal International plc Annual Report 2013 Resilient > Production > key financial figures > Asset portfolio (as at 31 December 2013) performance Production structure GE 1,707 598 54 10,650 1 2 Koz Sales revenue (US$ million) Adjusted EBITDA – Licences Total licence area (km )
1, 2 8 2 Gold equivalent 2012: US$1,854 million total (US$ million) What sets us apart 2012: 1,063 Koz 2012: US$932 million Strong capital discipline As demonstrated in 2013, we are able to react dynamically 6 to the changing market environment. This has allowed Mining operations us to maintain free cash flow generation and sustain +21% 745 13 8 Strategic report a significant dividend stream to our shareholders. Increase of gold equivalent Total cash cost Free cash flow production over 2012 (US$/GE oz)2 (US$ million) ■ Gold 63% 3 High-quality assets 2012: US$690/GE oz 2012: US$138 million > Reserves and Resources Our high reserve grade supports relatively low cost profile ■ Silver 35% and lower capital spending per ounce, which taken together ■ Copper 2% drive better returns on invested capital and resilience to price shocks. 1 The Company defines adjusted EBITDA (a non-IFRS measure) as profit for the period adjusted for depreciation expenses, rehabilitation expenses, write-downs of inventory Moz Moz to net realisable value, share-based compensation, listing expenses, additional mining 13.3 16.7 How we’ve delivered tax, penalties and accrued interest, income on disposal of subsidiaries, bargain purchase Ore reserves (GE oz) Mineral resources (GE oz) gains, foreign exchange gains/(losses), changes in fair value of derivatives, changes We beat our original production guidance for the second in fair value of contingent considerations, finance income, finance costs, and income consecutive year and delivered 1.28 Moz (2012: 1.06 Moz) tax expenses. Adjusted EBITDA margin is adjusted EBITDA divided by revenue. See Note 5 to the financial statements. of gold equivalent in 2013, up 21% year-on-year and 7% 2 Total cash costs comprise cost of sales of the operating assets (adjusted for depreciation above original expectations. This robust achievement expenses, rehabilitation expenses and write-downs of inventory to net realisable value) and general, administrative and selling expenses of the operating assets. Gold equivalent was driven by the successful ramp-up of our key growth 3.7 g/t 3.7g/t sales volume is calculated based on average realised metal prices in the relevant period. projects, Amursk POX and Mayskoye, and exceptional Total cash cost per gold equivalent ounce sold is calculated as total cash costs divided Average reserve grade Average resource grade by total gold equivalent unit ounces sold. (GE g/t) (GE g/t) operational delivery at the Dukat hub. 3 Mineral resources and ore reserves are estimated in accordance with the JORC Code (2012). Mineral resources are additional to ore reserves. Our achievements > 2011 > 2012 > 2013
Record production volume Strong operational performance Mayskoye mine started Polymetal achieved an all-time record Metal sales for the full year exceeded and ramped up > the future production volume with production for both gold and silver. The Mayskoye plant was started up in April We are fully on track to meet Polymetal produced and achieved design capacity by Q4. This production guidance for 2014 810 Koz marked the completion of a major investment of 1.3 Moz total gold equivalent, cycle to bring the second generation of assets increasing to 1.35 Moz in 2015. of gold equivalent. This strong performance 1,0 6 3 K o z into production, and the first 48 Koz of gold was bolstered by: of total gold equivalent, up 31% compared to were sold to off-takers. In 2014, we expect total cash costs • de-bottlenecking of the Omsukchan 2011 and exceeding original guidance by 6%. A Doré bar at Voro of US$700-750/gold equivalent concentrator (Dukat hub); New dividend policy in action (‘GE’) oz, all-in sustaining cash costs • the expansion of the Kubaka plant; and Resource base increased A total of US$0.82 per share was paid of US$975-1025/GE oz, and capital There was a dramatic increase in the resource in dividends in 2013, resulting in an industry- • mining and processing commencing expenditure of US$250 million base at Albazino. Successful exploration Production guidance exceeded leading dividend yield. The increased dividend at Albazino. (including exploration and has also identified potential new growth Polymetal exceeded its original annual Amursk POX plant payments were underpinned by commitment capitalised stripping). assets at Kutyn and Svetloye. As a result, production guidance for the second to capital discipline and strong free cash Premium listing on the LSE total gold equivalent resources grew by 35%. consecutive year and produced flow generation. Polymetal was admitted to the London Stock Exchange in November and included First operating POX plant in the Increased dividend pay-out De-stockpiling on track in FTSE 100 listing. Former Soviet Union launched Polymetal’s inaugural dividend payment, 1,282 Koz Progress made with scheduled stockpile 1.4 Moz The first operating pressure oxidation plant in respect of 2011, was made in June 2012. of gold equivalent, up 21% year-on-year. reductions and with total gold equivalent total gold equivalent in 2016 (POX) in Russia’s gold industry, Polymetal’s A new dividend policy was adopted, sales exceeding production. De-stockpiling Amursk POX was started up and produced raising the payout ratio to 30% and Amursk POX ramp-up was driven mainly by the Dukat hub its first gold in April 2012. introducing an annual consideration successfully completed and Albazino. of special dividends in order to ensure The Amursk POX plant delivered a full value is delivered to shareholders. quarter at design throughput and recovery Net debt decreased (averaging 93% in Q4). This is an important Positive cash flows resulted in a stable net strategic milestone for Polymetal, which debt at US$1,045 million, driven by continued
now possesses a unique competitive strong operating cash flow and decreased 2/3 Listing on the London Stock Exchange advantage in the FSU. capital spending. Strategic report Where we operate Polymetal International plc Annual Report 2013 High-quality > Mayskoye > OMOLON hub Bringing our newest mine Delivering the full up to speed potential of the processing hub concept 850 assets Mayskoye concentrator Ktpa 850 Kubaka CIP and Ktpa Merrill-Crowe plant
Mayskoye 1.3 Birkachan HL plant Mtpa
We have a growing portfolio Birkachan, Sopka, of high-quality assets, supported Tsokol, Dalneye > DUKAT hub
by a robust exploration programme. Oroch, Prognoz Further growth at Russia’s
largest silver mine Strategic report Pyatinakh, Burgali, 1.6 Dukat concentrator Adygaya Mtpa Map key 400 Lunnoye CIL plant Ktpa Hub Dukat, Goltsovoye, > Voro Lunnoye, Arylakh Operating mines Sustaining high performance Olcha and margins Development projects 900 HL Magadan + Krasin, Zvezdny, Ktpa Kamenisty Seaport 900 CIP Ktpa Standalone mining operations Voro Latvia Lithuania Key exploration projects South Voro, Volchansky
Head office
Belarus + City/town + Russia
> Amursk POX hub St. Petersburg > Khakanja hub Unparalleled competitive Ukraine Developing new and cost- Moscow + Ekaterinburg advantage in the region efficient ore sources Khabarovsk + 500 Amursk POX plant 600 Merrill-Crowe plant tpd processing concentrate Ktpa from Albazino Khakanja, Avlayakan, Ozerny Albazino, Mayskoye + Kostanay
Mongolia Georgia > Varvara > ALBAZINO (Amursk POX hub) Japan Strong operations in Kazakhstan Solid operating performance Kazakhstan delivering a stable contribution throughout 2013 Armenia 4.2 North Float + Leach 1.6 Uzbekistan Mtpa China KoreaAlbazino concentrator China Mtpa South Varvara Albazino, South and EastKorea flanks
Varvara (flanks) 4/5 Strategic report Performance highlights Polymetal International plc Annual Report 2013 Sustaining > Capital projects completed in 2013 Mayskoye – Capital expenditure strong US$m launch and full ramp-up 462 -20% Amursk POX – 397 performance completion of ramp-up 319
2011 2012 2013 Underground mining at Mayskoye Strategic report
Financial highlights Operational highlights
Read more on pages 56-69 Read more on pages 22-55
Revenue Total cash cost Adjusted EBITDA Ore mined Ore processed Gold equivalent production US$m US$/GE oz US$m Kt Kt Koz
1,854 745 932 12,591 10,749 1,282 -8% 701 +8% -36% -18% +10% +21% 1,707 690 11,002 9,809 1,063 10,379 8,821 810 1,326 624 598
2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013
Net income Basic EPS Dividends declared Average gold equivalent Resources growth Headcount US$m US$/share US$/share grade processed GE oz g/t 428 1.10 0.70 4.4 4.6 18.7 8,847 9,237 8,998 -54% +4% 16.7 -11% -3% 0.79 3.8 290 13.8
0.32
-198 -0.51 0 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013
Net debt/adjusted EBITDA All-in sustaining cash cost Free cash flow Lost time injury frequency rate Social investments GHG emissions1
US$/GE oz US$m LTIFR US$m CO2-equivalent tonnes per 10 Kt of ore mined 1.75 1,231 138 138 0.63 6.1 699 +57% +3% 0% 0.59 0.57 -3% -13% +29% 1,059 1,086 5.3 1.41 542 1.11 4.0
-260 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2012 2013 2011 2012 2013 6/7
1 2011 figure is not available as new methodology was used to calculate GHG emissions from 2012. Strategic report Development focus Polymetal International plc Annual Report 2013
Exploration drilling at Maminskoye Strategic report
> in focus A core element in our strategy newly discovered resources to reserves and preparing the Albazino expansion for driving long-term growth project for the development decision. Greenfield and brownfield exploration We have also advanced exploration has proved to be one of the most activities and preparation for resource/ efficient growth sources for Polymetal reserve estimates and development historically and remains an important decisions at key greenfield projects pillar of our development strategy. (Svetloye, Kutyn and Maminskoye) Our decision to sustain our exploration which may form the next generation programme and to keep working of our growth assets. on the next generation of growth assets is a conscious strategic We expect that reductions in ore preference in the current market reserves and mineral resources environment, although we have had in 2013 will be significantly reversed to slow down some projects and defer in 2014, as we step up our exploration development decisions for the key efforts and complete feasibility studies assets by approximately one year. on several key projects. investing in In 2013, we invested in both brownfield and greenfield exploration, with total metres drilled increasing +72% 72% year-on-year to 194.9 km. Total metres drilled, 2013/2012 We continued exploration activities at Albazino (including underground exploration drift, geotechnical studies and in-fill
drilling) with a view to converting the Read more on pages 46-47 8/9 Strategic report Operational focus
Concentrate processed Polymetal International plc Annual Report 2013 Kt 17 15 14 13 13 11 11 10 overcoming 8 6
4 4
challenges Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Gold recovery Strategic report % 91 94 94 86 87 89 81 81 81 84 75 75
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
> in focus Experience and technical In Q4 the Amursk POX plant delivered a full quarter of stable performance expertise built up during at the design parameters for both the year throughput and recovery. Gold The Amursk pressure oxidation plant production was 59 Koz in Q4 while (POX), our state-of-the-art and the first average recovery reached 93%. operating POX plant in Russia’s gold The plant is now running at 500 tonnes industry, is now set to give Polymetal per day, exceeding its nameplate a unique competitive advantage, both capacity for Albazino concentrate, nationally and in the Former Soviet with the aim of fast-tracking the Union, after successfully ramping processing of accumulated stockpiles. up to design throughput and recovery by Q4 2013. In 2013, the successful ramp-up process at the Amursk POX plant However, reaching this milestone has (and related concentrate de- taken longer than expected. During stockpiling) contributed significantly the ramp-up at the end of 2012, we to the increased gold production encountered a number of mechanical at Albazino/Amursk, which totalled and metallurgical problems, and 238 Koz and exceeded original a programme of remedial measures production guidance. was developed to deal with these issues promptly.
The POX facility was restarted in +207% Q1 2013, with limited daily throughput Increase in gold production in 2013 of concentrate to ensure operational at Albazino/Amursk stability. Works carried out during a planned six-week shutdown in Q2 then allowed the plant to quickly ramp-up to the design concentrate throughput in Q3, along with 94% improvement in recoveries. Design recovery achieved 0/11 10
Read more on pages 33-35 Strategic report Financial focus Polymetal International plc Annual Report 2013 Free cash flow US$m
138 138
capital
-260 2011 2012 2013 discipline
Dividends declared Strategic report US$/share
0.70
0.32
0.00 2011 2012 2013
Net debt/adjusted EBITDA
1.75 1.41 1.11
2011 2012 2013
> in focus Commitment to generating This was largely achieved due to lower operating and capital sustainable value expenditure levels, increased Commitment to capital discipline production and major de-stockpiling. is the key characteristic of our investment and funding policy. As a result, the Group’s liquidity profile remained comfortable, with net Capital discipline drives the use debt almost flat at US$1,045 million of the return on invested capital (2012: US$1,037 million) and 93% as the key metric for project of debt being long-term. This has development decisions. It also allowed us to retain dividend levels, underpins our commitment to with US$316 million being paid generate significant dividend streams in during 2013 and a final dividend for our shareholders while maintaining of US$31 million proposed in respect comfortable leverage levels and of this financial year. a conservative debt structure.
Despite challenging market conditions, in 2013 we were able to stick to all 7. 2 % of these core principles. Free cash flow for the year was US$138 million, dividend yield in 2013 remaining flat year-on-year despite 12/13 a substantial decline in revenues. Read more on pages 14, 56-69 Strategic report Chairman’s statement
Market conditions during the year proved challenging, with During 2013, Polymetal achieved full compliance with Polymetal International plc Annual Report 2013 gold and silver prices experiencing their sharpest drop in the the UK Corporate Governance Code during the year, Resilient last decade. However, thanks to a strong culture of delivering building on our established governance track record. on our commitments, I am pleased to report on Polymetal’s We made advances in our executive remuneration and resilient performance against this background. The high significant progress in sustainability governance and reporting, performance quality of our assets and a responsive team was instrumental gaining ISO certification and upgrading our sustainability in helping us achieve both our production targets and the disclosure to the exacting standards of the Global Reporting planned asset ramp-up. We were also quick to respond Initiative (GRI). in 2013 to market challenges, taking timely and appropriate decisions on production, capital expenditure and funding and thus However, we regard strong governance as a dynamic ensuring sustainable cash flow generation and profitability process, in which continuous improvement is key. In 2013, at the new commodity price levels. we instigated the first formal evaluation of the Board’s performance, undertaken by an independent external advisor. Polymetal has continued to build For the second year in a row, we exceeded our original annual This enabled us to review the Board’s effectiveness and a business that has clear strategic production guidance and produced 1.28 Moz (2012: 1.06 Moz) identify areas for improvement. The majority of areas were Strategic report of gold equivalent in 2013, up 21% year-on-year and 7% above rated very highly and we have pinpointed key priorities principles and a commitment to best original expectations. This achievement was driven by the for the coming year along with strategic issues on which business and governance practices. successful ramp-up of our key growth projects, Amursk POX we need to focus. Open-pit mining at Varvara and Mayskoye, and exceptional operational delivery at the Dukat hub. We continue to strengthen and improve our business, both operationally and financially, but never lose sight of the Board’s the year. Our outlook for 2014 remains unchanged with Dividends and value creation responsibility for ensuring that the Company is run in the a 1.3 Moz annual gold equivalent production target, which Delivering meaningful dividend yield to the Company’s best interests of all its stakeholders through our commitment is set to reach a further 1.4 Moz level by 2016 with the current shareholders is central to our strategy focused on capital to the highest levels of ethical and responsible behaviour. asset portfolio. Meanwhile, we will continue to prepare our third discipline. Polymetal has consistently implemented its dividend generation of assets for development decisions in 2014-2015 policy, with a payout totalling US$316 million in dividends Our people in order to ensure growth beyond 2016. We will also look for in 2013 representing a 7.2% dividend yield to shareholders. A strong leadership team can only achieve its goals with strategic acquisition opportunities, and continue to streamline This was underpinned by strong free cash flow generation the collaboration and commitment of a strong and capable our current asset portfolio performance – all driven by the core in both 2012 and 2013, and by our commitment to deliver workforce. At Polymetal, we have talented, dedicated and objective of creating long-term value for our stakeholders. this value to shareholders. hardworking employees and it is their efforts that are the bedrock of our success – now and in the future. On behalf Although the Company itself performed in line with the of the Board and the leadership team, I would like to thank Board’s expectations, sustaining the same level of cash flow everyone for their support and I look forward to working and profitability was clearly difficult in the significantly lower together with them for the long-term prosperity commodity price environment. Given current trends in the gold of the business. and silver market, with prices set to remain under pressure, Bobby Godsell the Board has rightly taken a conservative approach in order Confident outlook for 2014 Chairman to preserve the Company’s current balance sheet strength, The Board is pleased to be able to report a robust operating and has decided not to pay a special dividend for 2013. performance and resilient financial results for 2013, particularly given the vagaries of the commodity market trading throughout However, in line with our dividend policy and on the back of strong cash flow generation in 2013, the Board proposes a final dividend of US$0.08 per share for 2013 and this will be paid, subject to approval at the AGM, in May 2014. > structure Bobby Godsell Building on strong corporate governance 316 Board of Directors and Committees Chairman The Board is committed to open and constructive dialogue. Dividend payout in 2013, US$ million Effective corporate stewardship and strong corporate Member of the governance are particularly important for the wellbeing Board of Directors of the business in the current challenging market environment, and we believe that we have the right balance of skills, Bobby Godsell experience, independence and knowledge of the Company Vitaly Nesis Jonathan Best amongst the Board’s Directors to tackle these challenges. Marina Grönberg Leonard Homeniuk Russell Skirrow Konstantin Yanakov Jean-Pascal Duvieusart Charles Balfour
Chairman Executive Director Non-executive Director Independent non-executive Director
Audit and Risk Committee Remuneration Committee Nomination Committee 14/15 Read more on pages 74-101 Strategic report Chief Executive’s review
Robust operating performance Polymetal International plc Annual Report 2013 As reported in more detail in the Chairman’s statement, A successful Polymetal exceeded its original production guidance for the second consecutive year, delivering an increase of 21% year-on-year, which was 7% above our production guidance. year of This robust achievement was driven by the successful ramp-up at Amursk and Mayskoye and strong operational delivery at the Dukat hub. delivery Annual gold production was 805 Koz (2012: 589 Koz), up 37% year-on-year with significant increases coming and growth from Albazino and Mayskoye. Annual silver production was 27.2 Moz (2012: 26.5 Moz), up 3% year-on-year and helped by the increased throughput at the Dukat hub which more than offset the expected grade-driven decline at Khakanja. Strategic report
2013 was a year when the world’s The newly commissioned flagship Amursk POX plant, after gold miners were tested for their all initial issues had been addressed, successfully achieved Gold concentrate storage at Albazino The helicopter landing strip at Amursk design throughput and recovery in the second half of the year ability to withstand market challenges (averaging 93% in Q4). This is an important strategic milestone as prices experienced their lowest for the Company which now possesses a unique competitive safety rules by the employee. We have already implemented dip for nearly two decades. While the advantage in the FSU. a number of additional safety measures and enforcements to existing safety rules across our operating mines. +21% drop in commodity prices impacted Mayskoye, our newest underground mine and processing Production growth in 2013 on performance, Polymetal demonstrated plant, ramped up to full capacity, marking the full completion We are conscious of our long-term commitments of a major investment cycle between 2009 and 2012. to the economic, social and environmental wellbeing resilience by delivering on its promises of the people and places associated with our operations. and responding to the challenge swiftly Strategy We have an ongoing programme of initiatives that support job Our strong production results were underpinned by a strategic creation, the development of local and regional infrastructure, and effectively. commitment to capital discipline and to sustaining value in the health, education, culture, welfare and sports. Our investment 1,0 8 6 long-term. We were quick to respond to the changing market priorities are determined through regular feedback from, All-in sustaining cash costs in 2013, environment by trimming capital expenditure, suspending and our experience of working with, local communities and US$/GE oz higher cost assets and stabilising cost performance. indigenous peoples over many years. Our day-to-day conduct All of these decisions will help preserve both the long-term is guided by and complies with the UN Global Compact and value and the optionality of the Company’s portfolio. the UN Declaration on the Rights of Indigenous Peoples. Financial performance Looking to the future 138 While our financial results were unavoidably impacted by Our plans for 2014 and beyond already take into account Free cash flow in 2013 lower prices, this was partially offset by strong operating the current reduced level of commodity prices. Due to the (unchanged to 2012), US$ million performance and decreased capital expenditure. We high reserve grade and conservative price assumptions used continued to generate a strong free cash flow despite the in our life-of-mine models, the vast majority of our long-term challenging market conditions. This allowed the Company mine plans remain intact after the recent price decline. All our both to sustain dividend flow to shareholders and to maintain operating mines continue to generate positive cash flows and a strong balance sheet position, which in turn will provide can withstand further fluctuations in the gold and silver price. us with flexibility for further organic and acquisition growth As a result, the Company reconfirms its production guidance Vitaly Nesis opportunities in the current market environment. of 1.3 Moz of gold equivalent for 2014 and 1.35 Moz for 2015, Chief Executive as well as our medium-term production guidance Sustainability of 1.4 Moz in 2016. Polymetal is one of the employers of choice in the mining sector in Russia and Kazakhstan, employing Our strategic focus is on new growth assets – through both nearly 9,000 people at 31 December 2013. Alongside the the internal pipeline and M&A activities. We hope to deliver responsible development of our business, the wellbeing significant progress on both of these in 2014, but any decisions of our dedicated staff is paramount to the success of the about either route will be subject to our usual commitment Company. We have made solid progress across all business to capital discipline. operations to put in place an employee protection and workplace safety management system. Our health and safety focus for 2013-15 is to enhance our capabilities in three key areas – training, visualisation and monitoring – as well as rolling out the system to our supplier and contractor network. Vitaly Nesis Our lost time injury frequency for the year reduced by 3% Chief Executive over 2012. However, it is with great sadness that we report one fatality in 2013 at the Ozerny open-pit mine in the 16/17 Khakanja hub. A formal investigation into the incident has revealed a serious breach of both internal and statutory Strategic report Business model
Our business model is composed of three interdependent Polymetal International plc Annual Report 2013 elements: our investment in exploration, a focus on high-grade Our business assets and the development of our hub-based operating operating to system. These are all underpinned by our adherence model for to strong governance principles. a consistent g exemplary go inin ver ta na
n n ai ce success M n strategy atio lor xp F e oc in u g s n in ti g s o e n v
n h I i The objective of our business model g The consistent implementation
h Delivering - Strategic report g
r of our strategy is at the heart
is to ensure that we remain successful a Open-pit mining at Khakanja d
e sustainable
a of our successful track record. in our market and, in doing so, deliver s
s
e L t
sustainable value to our stakeholders. e value s v e ra The methodology that we have developed gi ng o ur focuses on our capabilities for increasing hub m M -based syste 01 Achieve design capacity at all plants 04 Value-driven organic and a e our resource base and enhancing in nc ta na inin ver and targeted production volumes (1.4 Moz) inorganic growth our processes for improving both g exemplary go production efficiency and grades. Achieve design capacity at projects currently under Acquisitions Focusing on high-grade assets construction or in ramp-up phase by the second half of 2013 Pursuit of selected synergistic ‘bolt-on’ or other value-accretive and achieve production level of 1.4 Moz of gold equivalent acquisition opportunities with a view to leveraging processing Return on investment in the precious metals industry is largely ounces in 2016. Assets under construction or ramp-up phase capacity, infrastructure and operational expertise at our existing driven by two key cost factors: grades and mining conditions. expected to generate production growth are the Amursk POX processing hubs, adding substantial new standalone mines We achieve better returns and lower risks from our project plant and Mayskoye concentrator. to the portfolio or transforming current standalone mines portfolio by setting appropriate thresholds on head grades into new hubs. and focusing on open-pit mines; only opting for underground Complete key capex projects development if this is justified by higher grades. 02 Greenfield exploration Investment in greenfield exploration with the aim Albazino, Amursk POX and Mayskoye were the key projects Read more on pages 22-45 of discovering high-grade quality assets for construction we concentrated on in 2012-2013. These have now been of new standalone mines. completed and are delivering a healthy contribution Leveraging our hub-based system to production and EBITDA. Near-mine exploration We have created centralised processing facilities to handle Investment in near-mine exploration with the aim of expanding ores from different sources. These enable us to achieve 03 Capital discipline: deliver superior the Group’s reserve base and creating opportunities for economies of scale by minimising processing and logistics production growth, either through grade improvement costs, as well as capital spending per ounce. The hub system operating profitability, free cash flow or expansion of existing processing facilities. Assets targeted also allows us to bring into production medium-sized or even and dividends such expansion are Albazino, Omolon, Khakanja and Voro. small-sized near-mine deposits that would be uneconomic to run as standalone operations. Deliver superior operating profitability and strong free 05 Maintain high standards of corporate Read more on pages 27-41 cash flow by maintaining tight cost control, focusing on return on capital in investment decisions and maintaining safe governance and sustainable development debt levels. Investing in exploration Maintain high standards of corporate governance, strictly adhering to the principles of sustainable development Successful exploration provides us with a cost-effective in our interaction with all stakeholders in our operations, increase in our reserve base and, along with successful including communities, employees and government bodies. acquisitions, is the key source of our long-term organic growth. We are compliant with the provisions of the UK Corporate Governance Code from June 2013. The Group is also Read more on pages 8-9, 24-26, 46-47 a participant in the UN Global Compact, a recognised international standard for sustainable development. Maintaining exemplary governance
We are committed to upholding good governance throughout our operations and in our interactions towards and on behalf of all our stakeholders.
Read more on pages 74-101 18/19
Surveying activity at Khakanja Strategic report We have a disciplined and measurable approach to ensuring that each element of our strategy is properly implemented. This is reflected in the Strategy clear KPIs that we use to measure progress against our strategy, and to which the remuneration of the Board is linked.
Risks KPIs Our performance in 2013 Polymetal International plc Annual Report 2013 01 Achieve design Priorities for 2014 • Production risk capacity at all plants Gold equivalent produced 1,282 Moz/+21% • Achieve a production level • Market risk – commodity prices of 1.3 Moz of gold equivalent Average grade gold equivalent 4.6 g/t/+4% and targeted production • Logistic and supply chain risk grade processed • Deliver a full year of robust performance volumes (1.4 Moz) at the Mayskoye and Amursk POX plants Read more on pages 71-72 • Negotiate potential terms of off-take
for Mayskoye
The autoclave section at Amursk • Commence stoping at the Avlayakan underground mine • Commence ore leaching at Birkachan heap leach facility (Omolon hub) Strategic report Risks KPIs Our performance in 2013 02 Complete key Priorities for 2014 • Construction and development risk capex projects Capex, US$ million 319/-20% • Advance the development decisions • Logistic and supply chain risk Major project milestones completed Mayskoye – launch and full ramp-up for the third generation of growth Amursk POX – completion of ramp-up assets, including potential expansion Read more on pages 72 at Albazino and development of Svetloye in the second half of the year
The Mayskoye plant
Risks KPIs Our performance in 2013 03 Capital discipline: Priorities for 2014 • Market risk – commodity prices deliver superior Total cash cost, US$/GE oz 745/+8% • Deliver on our total cash cost • Financial risks All-in sustaining cash costs, US$/GE oz 1,086/+3% guidance of US$700-750/GE oz operating profitability, • Tax risk and all-in sustaining cash costs Adjusted EBITDA, US$ 598/-36% of US$975-1,025/GE oz free cash flow Read more on pages 71-73 Adjusted EBITDA margin 35%/-15% • Achieve further decrease of capital expenditure to US$250 million and and dividends Return on equity A Board meeting at our St. Petersburg 6%/-16% generate significant free cash flow head office Free cash flow, US$ million 138/0% • Maintain conservative funding structure to allow for dividend payments and Dividend yield 7.2% flexibility for further growth opportunities
Risks KPIs Our performance in 2013 04 Value-driven organic Priorities for 2014 • Exploration risk M&A: Acquisition of Maminskoye – 0.9 Moz and inorganic growth • Advance the development decisions • Mergers and acquisitions Transactions made during 2013 of gold reserves in the Urals with for the third generation of growth exploration upside • Political risk assets, including potential expansion Organic growth through exploration at Albazino and development of • Legal risk Exploration expenditure, US$ million 59 Svetloye in the second half of the year Read more on pages 72-73 Drilling volumes, km 195/+72% • Screen for potential value-accretive Kerns from the Maminskoye M&A in the current market environment Advanced exploration project decisions Svetloye, Albazino-2 – expected in 2014 exploration project • Continued resource-to-reserve Kutyn, Maminskoye – expected in 2015 conversions and resource category updates at our advanced standalone exploration targets and brownfield targets through in-fill drilling
Risks KPIs Our performance in 2013 05 Maintain high Priorities for 2014 • Environmental risk Compliance with UK Corporate standards of corporate • Increased focus on enforcement • Health and safety risk Governance Code of health and safety rules and risk governance and sustainable LTIFR 0.57/-3% management, with particular attention Read more on pages 72-73 to key risk areas and rollout of our development CSR spending, US$ million 5.3/-13% systems to suppliers and contractors
GHG emissions, tonnes per 10 Kt 699/+29% • Keep on track with the high standards 20/21 A traditional ‘Festival of the North’ of ore mined of corporate governance and in the Khabarovsk region corporate responsibility Strategic report Operating review
Polymetal exceeded its original annual production guidance Production highlights Analysis of production results Polymetal International plc Annual Report 2013 by 7% and produced 1.28 Moz of gold equivalent during 2013, % Mining Resilient up 21% year-on-year. This achievement was driven by the 2013 2012 change Stripping volumes in 2013 were flat at approximately 85 Mt successful ramp-ups at Amursk POX and Mayskoye, and Key operating highlights of rock moved. Volumes of stripping were significantly reduced strong operational delivery at the Dukat hub, supported Stripping, Kt 84,956 85,173 0% at the Omolon hub after Q2 (due to completion of a massive operating by a robust performance at other mature operating mines. stripping campaign and suspension of mining at Birkachan Underground development, m 55,339 46,717 +18% in response to lower commodity prices), while at Varvara The full ramp-up of Amursk and Mayskoye in 2013 marked Ore mined, Kt 10,379 12,591 -18% stripping volumes increased in the second half of the year performance the completion of a major investment cycle and brought – open-pit 7,975 10,937 -27% as a result of pushback in the North-West and North-East pits. a whole new generation of Polymetal’s assets (Albazino/ – underground 2,404 1,654 +45% Underground development increased by 18% to more than Amursk, Omolon and Mayskoye) online. These new mines Metal in ore mined, GE grade g/t 4.7 3.9 +22% 55 km, mainly due to increased volumes at the Dukat hub supported by contributed 35% of total gold equivalent production in the year, Ore processed, Kt 10,749 9,809 +10% where ore is increasingly sourced from underground, with as well as the bulk of production growth during 2011-2013. Metal in ore processed, GE grade g/t 4.6 4.4 +4% the Dukat and Arylakh mines switching fully to underground. In 2013, we commenced open-pit mining at Dalneye (Omolon
Production Strategic report In the light of a insignificant decline gold and silver prices hub) and underground mining at Avlayakan (Khakanja hub). high-quality – gold, Koz 805 589 +37% in the second quarter of 2013, the management and the Board undertook a strategic review of our operations and – silver, Moz 27.2 26.5 +3% Ore mined was 10.4 Mt and decreased by 18% compared assets projects, quickly identifying and implementing action plans – copper, Kt 4.841 6.567 -26% to 2012; this is mainly attributable to the drawdown to optimise operating performance and capital expenditures. Gold equivalent production, Koz 1,282 1,063 +21% of additional ore for processing from prior years’ stockpiles The operational decisions taken were aimed at maintaining Sales at Varvara, Omolon and Khakanja. The bulk of ore mined (77%) free cash flow generation and the capacity to pay dividends – gold, Koz 808 589 +37% was sourced from open pit, however the share of ore mined in the current market environment, whilst securing the long- from underground has increased since the Mayskoye mine – silver, Moz 27.4 27.8 -2% Despite significant turbulence term health of our assets and retaining flexibility should started active stoping with the launch of the processing plant prices recover in future. – copper, Kt 6.141 7.011 -12% and the Dukat hub shifted almost completely to underground in commodity markets in 2013, Gold equivalent sales, Koz 1,295 1,088 +19% mining during the year. Polymetal demonstrated a resilient In light of this, high-grading (raising the cut-off grade Health and safety performance and delivered of a mine significantly and continuing to mine whilst leaving LTIFR 0.57 0.59 -3% The average gold equivalent grade in ore mined was the rest of the ore body uneconomic) was discarded as an FIFR 0.06 – NA 4.7 g/t, a 22% increase year-on-year. The high-grade profile on all of its operating targets. approach for higher-cost assets. Instead, we have selectively of Polymetal’s operations was further supported by the newly suspended certain mines completely (Birkachan (Omolon hub)) Exceeding expectations for production and sales launched Mayskoye mine (average grade mined was 7.4 g/t and revised mine plans for certain processing hubs (Omolon Annual gold production was 805 Koz, up 37% year-on-year gold) and the strong grade profile at Dukat, where the average and Khakanja hubs) in order to accelerate access to lower with significant increases coming from Albazino and Mayskoye. silver grade in ore mined increased by 8% year-on-year cost and/or higher grade material. All decisions, including Annual silver production was 27.2 Moz, up 3% year-on-year to 429 g/t. the reallocation of mining volumes, optimisation of stripping due to increased throughput at the Dukat hub, which more and underground development, were driven by the than offset the grade-driven decline at Khakanja. Copper The full rollout of the short-, medium- and long-term life-of-mine NPV of an operation rather than short-term production was 4.8 Kt, lower than in 2012 because computerised mine planning system across all the Group’s cost-cutting considerations. of a scheduled decrease in copper grades at Varvara. operations was also an important technical achievement during 2013. Additionally, as a result of the Board’s strategic review, capital Silver sales lagged behind production in the first half of the expenditure was optimised with savings of approximately year, mainly due to increased concentrate in transit inventories Processing US$60 million in 2013. Key decisions included: at Dukat. However, the gap was closed in the second half Ore processed increased by 10% in 2013 and totalled 10.7 Mt. • the Sopka heap leaching project was postponed. and metal sales for the full year slightly exceeded production The increase was driven by further capacity expansion at the Dukat hub (including both Lunnoye and Omsukchan plants) • the greenfield/brownfield exploration budget was reviewed for both gold and silver. and the launch of the Mayskoye processing plant in April 2013, and re-prioritised. We have continued to invest in key which milled 488 Kt by the end of the year. Our mature mines development projects such as Svetloye, Maminskoye, Successful completion of key capital projects demonstrated stable performance in terms of throughput Kutyn and the expansion of Albazino, although the pace Amursk POX and Albazino mine, as a result of de-bottlenecking, increased of development has been slowed down and key project Despite the unexpected setback in the ramp-up schedule its capacity to 1.6 Mtpa of ore by the end of the year. development decisions have been pushed back by at the Amursk POX plant, by the end of the third quarter approximately 12 months. At a number of early-stage of 2013 the plant was ramped up to full capacity and achieved In line with increased grades in ore mined, the average gold exploration assets, exploration volumes have been design throughput and recovery. This required a six-week equivalent grade in ore processed grew by 4% to 4.6 g/t. reduced or cancelled completely. maintenance shutdown in the second quarter and an upgrade of the water treatment unit in the third quarter of the year. This result was achieved through: the launch of the high-grade • certain non-core maintenance projects/mining Mayskoye mine; the high grade profile at the Dukat hub and equipment purchases at operating mines have been With these measures successfully completed on schedule, the plant quickly reached design parameters. Albazino; and robust grade performance elsewhere across cancelled or delayed. the Group, with the exception of Khakanja (scheduled grade decline driven by depletion of Yurievskoye and Khakanja’s Launch of Mayskoye The actions outlined above made no impact on our 2013 pit 3) and Omolon (scheduled grade decline at Sopka). production plans and only a minor impact on the medium-term Another highlight of the year was the successful launch production up to 2016, when our original 1.4 Moz of gold and ramp-up of the Mayskoye processing plant. Between equivalent production target will be achieved. Furthermore, its launch in April and December, the plant produced we were also able to bring cash costs down by 8% 87 Koz of gold in concentrate and achieved design in the second half of the year compared to the first half. throughput and recovery levels. 22/23
Gold concentrate unloading at Amursk Strategic report Operating review continued
Metal sales in 2013 were 1,295 Koz of gold equivalent,1 Production • greenfield exploration for new precious metals deposits with Polymetal International plc Annual Report 2013 For the second consecutive year, and despite commodity and grew by 19% compared to 2012. Sales volumes a potential resource base which would be sufficient in grade Movement in gold equivalent ore reserves price fluctuations, we have exceeded the original guidance, slightly exceeded production for the full year. and size to justify the construction of a standalone mine; and Moz achieving 1.28 Moz of gold equivalent production in 2013. • exploration for platinum group metals (PGM) in the While most of the sales are comprised of refined metals, Dukat, Mayskoye and Albazino/Amursk were the key Ekaterinburg and Karelia regions in order to establish we continue to sell concentrates from Dukat (gold-silver), 15,138 contributors to this growth. Voro and Varvara demonstrated new hard-rock PGM resources. resilient performance. Production decline at Khakanja was Varvara (gold-copper) to off-takers in Kazakhstan, Japan, (1,517) 13,277 (1,498) 1,154 a result of scheduled grade decline and the decrease at South Korea and China. For Dukat and Varvara, the off-take Key 2013 exploration statistics Omolon was a result of expected average grade decline allows us to maximise margins compared to in-house processing of these materials. During 2013, we diversified % in ore from Sopka. 2013 2012 change the off-taker base considerably in order to achieve an optimal Exploration works In 2013, Polymetal continued to reflect seasonality in its combination of transportation costs and treatment charges/ production profile. Production dynamics on a quarterly recoveries. Off-take diversification is also an important element Core drilling, km 194.9 113.5 +72% basis are shown in the graph below. The strength of the of Polymetal’s strategy aimed at strengthening our commercial Trenching, th. m3 127.5 294.2 -57% second and the third quarters of the year was driven by: independence from key customers. Underground development Ore reserves Processing Revaluation New Ore reserves Strategic report for exploration purposes, m 1,137 579 +96% at 01.01.13 discoveries at 01.01.14 • shipment of concentrates from Mayskoye and Albazino Due to the temporary setback in the ramp-up schedule for the during the navigation period; Sampling, thousand samples: Amursk POX plant and in order to avoid build-up of excessive Trench sampling 8 13.5 -41% In 2013, Polymetal decreased its ore reserves by 12% • ore transportation at Omolon (trucking of ore from concentrate stockpiles, we resumed concentrate sales from to 13.3 Moz of gold equivalent while mineral resources Sopka by winter road in the first quarter, processing Core sampling 129.8 102 +27% Albazino in the second and third quarters of 2013. Sales to (additional to ore reserves) declined by 11%. These reductions in the second and third quarter); and Sludge sampling 6.1 – NA off-takers in China during 2013 increased by 25% year-on-year were driven mostly by more stringent economic evaluation, • seasonal heap leaching operation at Voro. and comprised 79 Koz. This has now been fully completed, Geophysical research, area covered, km2 37.2 103.8 -64% using the same prices of US$1,300/oz gold and US$22.5/oz with no further off-take required from 2014. silver for both reserves and resources. In 2014, with the full volume of Albazino concentrate In 2013, despite a significant decline in gold and silver prices, to be processed at the Amursk POX, the level of seasonality Shortly after the start-up of the Mayskoye concentrator The key material additions to ore reserves were due to we continued to invest in exploration with total metres drilled is expected to reduce. However seasonal navigation in April 2013, Polymetal signed two export sales contracts resource-to-reserve conversion at Oroch (241 Koz of gold increasing 72% year-on-year to 194.9 km. Total capital at Mayskoye and seasonal high-grade ore processing with Chinese off-takers for refractory gold concentrate equivalent) and acquisition and subsequent revaluation expenditure on exploration declined by 13% to US$59 million, at Omolon will continue to influence the production profile, produced at Mayskoye. A total of 30 Kt of concentrate of Maminskoye (913 Koz of gold equivalent). Decreases mostly due to a decrease in the unit costs of drilling and with peak production expected in the third quarter. with 48 Koz of payable gold was shipped to off-takers in ore reserves, in addition to regular depletion (1,517 Koz), a reduction in early-stage activities such as trenching. during the navigation period in 2013. resulted mostly from the response to changes in mine plans and were mainly comprised of the following: Quarterly production data Exploration We have made solid progress on all key advanced GE Koz Polymetal’s exploration activities are focused in five regions greenfield and brownfield exploration projects. As a result, • re-optimisation of open pits at Birkachan and Sopka; ■ Gold ■ Silver ■ Copper of Russia – Khabarovsk, Magadan, Chukotka, Karelia and material additions to ore reserves are expected in 2014 • exclusion of remote ore zones and ore bodies requiring 413 Ekaterinburg – as well as in Kazakhstan. Polymetal currently at Svetloye (Q2), Albazino (Q4) and Kutyn (Q4), with further significant additional investment in access at Dukat; and 6 has 54 licences for geological studies and gold, silver and likely additions at near-mine properties at Omolon and Voro. • indefinite postponement of underground mining at Khakanja 317 323 126 298 310 copper exploration and mining, and one coal mining licence. due to adverse assessment of geotechnical conditions. 9 7 8 4 Reserves and resources 113 244 235 126 135 281 94 Ore reserves and mineral resources summary1 203 8 7 Our current exploration portfolio includes 40 licences Mineral resources decreased, mostly as a function 8 99 212 with a total area of approximately 10,240 km2. Of these, 1 January 1 January % 196 107 190 of the lower gold price used in the year-end estimates 94 2014 2013 change 154 our exploration activities in 2013 covered 28 licence areas, (US$1,300/oz in 2013 vs US$1,500/oz in 2012). 137 121 101 including 20 areas in the scoping stage and eight areas Ore reserves in the advanced exploration stage. (proved + probable), Average ore reserve grade remains high at 3.7 g/t GE, gold equivalent Moz 13.3 15.1 -12% a decline of 7% compared with 2012, while average mineral Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Our exploration targets for 2013 included: Gold, Moz 8.9 9.6 -7% 2012 2012 2012 2012 2013 2013 2013 2013 resource grade increased by 14% to 3.7 g/t as a result • ongoing brownfield exploration activities aimed Silver, Moz 219.5 3 07.6 -29% of lower-quality resources being excluded from the estimate. at extending mine lives at our existing operations: Copper, Kt 77.0 82.9 -7% Gold equivalent production by mine Koz Khakanja (with the shortest current mine life), Dukat, Mineral resources Acquisitions remain an important pillar of our strategy % Omolon, Varvara, and Voro; (indicated + measured + inferred), We believe that the current weakness in precious metal 2013 2012 change gold equivalent Moz 16.7 18.7 -11% • continued exploration activities at Albazino (including prices represents both a challenge and an opportunity. Dukat 409 357 +15% underground drift, geotechnical studies and in-fill drilling) Gold, Moz 13.4 14.9 -10% Growth through synergistic, value-driven M&A has always Khakanja 144 164 -12% with a view to converting the newly discovered resources Silver, Moz 117.2 146.1 -20% been an integral part of our strategy. In 2013, apart from the acquisition of Maminskoye, we undertook no major Voro 154 157 -2% to reserves and preparing the Albazino expansion project Copper, Kt 145.2 281.4 -48% transactions. However, we are still keen to investigate potential Varvara 134 for the development decision; 1 Mineral resources and ore reserves are reported in accordance with the JORC Code 132 -2% acquisition opportunities, and have both the financial and • advanced exploration activities and preparation for (2012). Mineral resources are in addition to ore reserves. Discrepancies in calculations Omolon 158 173 -9% are due to rounding. operational flexibility to respond should such opportunities Albazino/Amursk 238 77 +207% resource/reserve estimates and development decisions arise. In our acquisition strategy, we remain focused on Mayskoye 48 – NA at key greenfield projects (Svetloye, Kutyn and Maminskoye) high-quality development stage assets, with high-quality which may form the next generation of our growth assets; Total production 1,282 1,063 +21% resources/reserves and long mine life to justify the construction of a standalone mine at current commodity price levels. 24/25
1 At 1/60 Ag oz/Au oz ratio, 5/1 Cu Mt/Au oz ratio. Strategic report Operating review continued
Outlook for 2014 Exploration For the second year in a row, Dukat takes the lead among our Polymetal International plc Annual Report 2013 The key operational focus in 2014 will be to deliver a full In 2014, our exploration activities will be focused on: mature mines in terms of both production growth and robust year of robust performance at two of our newest plants – DUKAT cost performance. Silver production in 2013 was 22.1 Moz, • continued resource-to-reserve conversions and resource Mayskoye and Amursk POX – and sustain robust operating category updates at our advanced standalone exploration up 15% year-on-year, and was further supported by performances at the Dukat hub and other mature mines. targets and brownfield targets through in-fill drilling; improvements in average grades at the Dukat and Goltsovoye In doing so, we expect to achieve a production level mines and increased recovery rates. Despite the full switch • additional drilling at the flanks of Ozerny and Avlayakan of 1.3 Moz of gold equivalent, which will be further improved to underground mining, the Dukat hub achieved a further with a view to extend life-of-mine at Khakanja; to 1.35 Moz in 2015 and 1.4 Moz in 2016, based on the > reduction in total cash costs of 5% to US$11.6/silver further growth at Russia’s current asset base. • further increase of resource potential at Albazino through equivalent oz. additional underground development and drilling in the largest silver MINE Operations Olga zone, in-fill drilling in the Ekaterina-1 and Ekaterina-2 2013 highlights Achieving our targets at Mayskoye will be key to delivering zones, and additional step-out drilling at the flanks of the Albazino field; Mining on this guidance. This will include trial processing of concentrate In 2013, underground development at Dukat increased by 26% from Mayskoye at the Amursk POX plant in the first quarter • completion of a resource estimate at Burgali and continued
year-on-year to 30.7 km, with more than 1.25 Mt of ore mined Strategic report and negotiation of the potential terms of long-term off-take. exploration at the other brownfield targets in the Omolon from underground, and average silver grade in ore mined The split between own-processing at the POX plant and hub area; increasing by 9% to 423 g/t. This compensated for the 6% off-take sales will be driven partially by the relative economics • in-fill drilling and finalisation of resource estimates decrease in the total amount of ore mined after the completion of each of these routes and partially by the prospects at Olcha with preparation for open-pit mining and of open-pit mining. Within the mine, we commenced of an Albazino expansion, which, if undertaken, will require exploration for new ore bodies in the area; development of the Eastern zone and further improved additional POX capacity. dilution levels by fine-tuning the parameters of blasting • continued exploration at the two key greenfield targets and drilling works. At the Amursk POX plant, the key objective is to deliver a full of Kutyn and Svetloye, followed by resource estimates year of sustainable performance and further optimise it in terms and preparation of oxidised ores for open-pit mining; At Goltsovoye, following a significant amount of development of costs. Another important goal is to deliver a robust recovery • continued scoping and exploration at the Elmus and Semcha in 2012, ore mined nearly doubled year-on-year to 168 Kt, and cost profile on the processing of Mayskoye concentrate. areas in Karelia, with a view to developing a new standalone and the average grades increased by 14% to 624 g/t silver, While the past year was challenging in terms of the POX plant gold/PGM asset in the region; and Russia, Magadan Region contributing to the increased grades in the Omsukchan concentrator feedstock. Underground development continued performance, we believe that the internal expertise gained • preparation of Maminskoye resources for open-pit mining Managing director: Mikhail Egorov to accelerate and comprised 7.1 km in 2013, a 35% increase. as a result of the ramp-up process will enable us to deliver and step-out drilling at the flanks of the deposit. Employees: 1,869 both of these targets successfully. The successful implementation of the drift-and-fill mining method has contributed to a significant reduction in dilution Our focus on exploration is a conscious strategic preference and improved average grades in ore mined. Our operational objectives for other existing mines are: in the current market environment. With a high-quality portfolio 3rd +15% • further de-bottlenecking at the Dukat hub underground of operating assets, we continue to generate robust operating At Arylakh, volumes of stripping and ore mined from open pit largest silver deposit Silver production in 2013: mines and achieving total throughput of 2 Mtpa; results and healthy cash flows at lower commodity prices. continued to decline due to depletion while being substituted in the world 22.1 Moz • commencement of stoping at the Avlayakan underground We would, therefore, like to be fully prepared for the next by higher grade ore from underground. At Lunnoye works mine and achieving an increase in the amounts of ore stage of the commodity cycle by developing a new generation progressed steadily across ore zones 7 and 9 in accordance mined and shipped to Khakanja; of Polymetal’s assets, both from reserve additions from with the mine plan. Total ore mined increased by 7% year-on- exploration and from potential acquisition opportunities. year to 394 Kt, although there was a slight decrease in average • increasing volumes of ore mined at Varvara after completion -5% +8% The year ahead will be important for progressing both routes. silver grade to 367 g/t due to the depletion of the open pit of the pushback and pit optimisation; Total cash costs: Ore processed: at Arylakh. • a further increase in the amounts of ore trucking by winter US$11.6/silver equivalent oz 1,9 Mt road at the Omolon hub from Sopka and Dalneye; Processing • commencement of ore leaching at Birkachan heap leach The amount of ore processed at the main Omsukchan facility (Omolon hub); and concentrator grew by 9% year-on-year and comprised 1.57 Mt, with a further increase to 1.6 Mt expected in 2014 as a result • an increased focus on enforcement of health and safety rules of de-bottlenecking and increased capacity of the underground and risk management, with particular attention to key risk Dukat mine. Average grades processed followed the positive areas and rollout of our systems to suppliers and contractors. dynamics at Dukat and Goltsovoye mine, with the silver grade processed increasing to 425 g/t (+6% year-on-year). The Barring any further deterioration of commodity prices, we are average recoveries also trended up by 3% for gold and 2% also set to advance the development decisions for the third 7 for silver to 83.7% and 86.3% respectively. As a result, silver generation of growth assets, including potential expansion 1 Lunnoye production grew by 18% year-on-year to 18.3 Moz, of which at Albazino and development of Svetloye in the second half 2 the majority was sold to third-party off-takers. of the year. In 2015 we will also consider development 4 3 Dukat +Omsukchan decisions for our Kutyn and Maminskoye projects. 5 6 The new SAG mill was successfully commissioned at Lunnoye Kern analysis at Ozerny plant, which now has the capacity to process 400 Kt of ore per annum. Additional feed will come from existing stockpiles Mines and potentially from the new satellite mine at Olcha in 2015. 1 Arylakh In 2013, the amount of ore processed was up 1% at 338 Kt 2 Lunnoye and, despite some grade decline in the ore feed (see above), +Magadan 3 Perevalny silver production was up 2% at 3.8 Moz due to increased 4 Nachalny-2 recoveries which comprised 89.3% for silver. 5 Dukat 6 Goltsovoye 7 Olcha 26/27 Processing plants + Town Strategic report Operating review continued
Dukat continued Processing plants Mines Polymetal International plc Annual Report 2013 Resources and exploration Omsukchan concentrator Dukat Nachalny-21 Goltsovoye Lunnoye Arylakh Perevalny Olcha Total We have continued our efforts in near-mine exploration in the Type Flotation/gravitation Status Operating Developing Operating Operating Operating Scoping Developing Dukat licence area. In 2014, Dukat flanks and deep levels will Capacity, Ktpa 1,600 Mineralisation type Vein-veinlet Vein Narrow vein Mineralised Vein-veinlet Vein-veinlet see additional drilling concentrating on extensions of known Commencement of production (year) 2002 disseminated zone veins beyond the down-dip limitations of historic exploration. Mine type Underground Open-pit Underground Underground Open-pit Underground We will also attempt to discover a new vein down plunge Ore from which mines is processed Dukat, Goltsovoye (open-pit/underground and open-pit of the host rock formation, under the cover of sedimentary Lunnoye processing plant mining method) rocks. At Olcha, drilling will focus on the underground Type Cyanide leaching Commencement 2001 NA 2011 2000 2006 NA Expected potential of currently known veins with an ore reserve and Merrill-Crowe of mining (year) 2015 estimate expected by the 2014 year-end. Capacity, Ktpa 400 Current life-of-mine end (year) 2023 Commencement of production (year) 2001 Reserves Ore from which mines is processed Lunnoye, Arylakh, Gold equivalent, Moz 2.6 – 0.3 0.6 0.2 0.0 0.0 3.7 Strategic report concentrate from Gold equivalent Omsukchan reserve grade, g/t 8.2 – 9.9 6.8 9.0 0.0 0.0 8.1 concentrator Resources Gold equivalent, Moz 0.7 – 0.3 0.6 0.1 0.2 0.7 2.6 Gold equivalent resource grade, g/t 8.7 – 12.7 11.7 9.8 6.6 2.4 5.2
1 Reserves and resources included in Dukat.
> 2014 Priorities In 2014, we plan to produce about 400 Koz of gold The Lunnoye plant at our Dukat hub equivalent at Dukat since we expect the strong grade and recovery profile to continue. This will be enhanced by increased capacity at both Lunnoye and Omsukchan plants where throughput of 400 Ktpa and 1,600 Ktpa of ore, respectively, is anticipated.
Mining: 2013/2012 statistics At Arylakh, the transition to underground mining will be Dukat Goltsovoye Lunnoye + Arylakh Total completed and the open pit is likely to close in Q2 2014. % % % % At Lunnoye, from Q3 2014 onwards, underground mining 2013 2012 change 2013 2012 change 2013 2012 change 2013 2012 change is expected to shift more towards the Zone 7 mine with lower gold and higher silver grades. Stripping, Kt – 967 -100% – – NA 1,034 2,591 -60% 1,034 3,558 -71% Underground We will continue to work with our diversified off-taker base development, m 30,717 24,311 +26% 7,102 5,248 +35% 6,612 4,601 +44% 44,431 34,160 +30% in Japan, South Korea and Kazakhstan in order to achieve Ore mined, Kt 1,253 1,328 -6% 168 84 +99% 394 370 +7% 1,815 1,782 +2% optimum cost performance and recovery for the flotation Metal in ore and gravity concentrates produced at Dukat. mined (grades) – gold 0.9 0.7 +31% – – NA 1.1 1.1 +4% 0.9 0.7 +17% In 2014, if the market conditions are favourable, we will – silver 423 387 +9% 624 548 +14% 367 395 -7% 429 397 +8% start development activities at the Olcha satellite deposit, where mining is expected to commence in 2015. The Omsukchan plant at our Dukat hub Production: 2013/2012 statistics Omsukchan concentrator Lunnoye processing plant Total % % % 2013 2012 change 2013 2012 change 2013 2012 change Ore processed, Kt 1,574 1,439 +9% 338 333 +1% 1,912 1,772 +8% Metal in ore processed (grades) – gold 0.7 0.7 +8% 1.1 1.2 -4% 0.8 0.8 +4% – silver 425 401 +6% 391.4 411.2 -5% 419 403 +4% Recoveries – gold 83.7% 81.0% +3% 85.6% 90.2% -5% – silver 86.3% 84.3% +2% 89.3% 87.7% +2% Production – gold, Koz 30 25 +21% 10 11 -7% 41 36 +12% – silver, Moz 18.3 15.5 +18% 3.8 3.7 +2% 22.1 19.2 +15%
Gold equivalent, Koz 335 284 +18% 73 72 +1% 409 357 +15% 28/29 Total cash cost, US$/silver equivalent oz 11.6 12.1 -5% Adjusted EBITDA, US$m 229 378 -39% Strategic report Operating review continued
Despite a significant revision in annual and medium-term Processing Processing plants Polymetal International plc Annual Report 2013 mine plans triggered by adverse movement of commodity At the Kubaka plant, total throughput increased by 6% Omolon prices in the first half of 2013, Omolon demonstrated to 767 Kt and recoveries for both gold and silver increased Kubaka a robust operating performance during the year. It was by 1% to 95.3% and 88.4% respectively. This helped Type CIL, Merrill-Crowe underpinned by flexibility and resilience offered by the concept to partially offset the decline in average grades processed Capacity, Ktpa 850 (-13% for both gold and silver) driven mainly by the expected of a processing hub with multiple feed sources. We were Commencement of production (year) 2010 therefore able to reallocate the mining volumes promptly average grade decline in ore from Sopka. As a result, gold Ore from which mines is processed Birkachan, Sopka, and deliver on our original targets in terms of gold equivalent equivalent production for 2013 was 158 Koz, down 9%. > Tsokol, Dalneye Delivering THE full potential production, producing 158 Koz of gold equivalent during of THE processing hub concept the year. As part of the strategic review, management decided Birkachan to defer the start of heap leaching at Birkachan (originally Type Heap leach 2013 highlights scheduled for Q2 2013) but to continue ore stacking during Capacity, Ktpa NA 2013. We are planning to start leaching in 2014 with more Commencement of production (year) 2014 Mining ore stacked to achieve a better cost profile due to economies Ore from which mines is processed Birkachan With the launch of mining at Dalneye in the third quarter, of scale. The heap leaching will then operate through to 2016. Strategic report Omolon currently has four sources of ore: higher grade ore from Birkachan and ore from Tsokol are processed at the Reserves, resources and exploration CIP circuit of the Kubaka plant; high-grade ore from Sopka Our brownfield exploration activities for Omolon in 2013 and Dalneye is trucked to Kubaka and processed at the were focused on several targets within a range of 150 km Merrill-Crowe circuit. of the Kubaka plant in order to extend the life-of-mine. The reserve attrition at Birkachan and Sopka was partially 2013 saw a significant reallocation of mining volumes at the compensated by resource-to-reserve conversion Omolon hub in response to the adverse changes in the gold at Oroch at 1 January 2014 (+218 Koz of gold equivalent and silver price. Open-pit mining was suspended at the reserves). Mining at Oroch is expected to commence Birkachan mine, which had the highest cash cost level, with in 2015. New resource additions from Burgali and Russia, Magadan Region mining volumes reallocated to Tsokol, Sopka and Dalneye, Nevenrekan (both saw additional in-fill and step-out Managing director: Vladimir Bloshkin where a higher grade profile ensures lower cost levels. drilling in 2013) are expected in 2014. Employees: 825 As a result, ore mined at Birkachan decreased by 55% compared to 2012.
At Sopka, the amount of ore mined was 672 Kt, a 47% 767 Kt 7.1 g / t decrease compared to 2012, while average grades for both Ore processed Average GE grade gold and silver increased by 73% and 47% respectively. in 2013 processed The decrease was largely driven by the availability of existing stockpiles and revision of the mine plan as a result of the Mining: 2013/2012 statistics Group’s strategic review. At Sopka, trucking of ore by winter road was successfully completed by the end of the first Birkachan Sopka Tsokol Dalneye Total 158 Koz quarter of 2013 with 320 Kt of high-grade ore trucked. % % % % % GE production 2013 2012 change 2013 2012 change 2013 2012 change 2013 2012 change 2013 2012 change The heap leach project for low-grade Sopka and Dalneye ore Stripping, Kt 1,932 9,133 -79% 5,912 9,054 -35% 4,998 3,284 +52% 3,695 – NA 16,537 21,471 -23% has been further postponed from 2015 to 2016. Consequently, Ore mined, Kt 586 1,290 -55% 672 1,271 -47% 223 101 +121% 584 – NA 2,065 2,662 -22% the last pushback in the Sopka pit has also been excluded Metal in ore from the mine plan with some loss of reserves below the mined (grades) current pushback boundary. The potential for underground – gold 1.8 1.8 +1% 3.9 2.3 +73% 4.8 5.2 -8% 3.6 – NA 3.3 2.1 +56% mining at Sopka will be assessed by Q4 2014. – silver – – NA 142.1 96.7 +47% – – NA 73.8 – NA 67.1 46.1 +45% Kubaka 1 2 Mining at Dalneye commenced in the middle of the year 3 Mines and is now continuing at full scale. A total of 584 Kt of ore Production: 2013/2012 statistics 4 1 Birkachan was mined in 2013, and the first 42 Kt of high-grade ore Kubaka plant Total 5 + 2 Tsokol was trucked by winter road to the Kubaka mill during Q4, % % Evensk 2013 2012 change 2013 2012 change 3 Oroch ahead of schedule. 4 Sopka Ore processed, Kt 767 724 +6% 767 724 +6% 5 Dalneye At Tsokol, volumes of waste and ore mined have increased Metal in ore processed (grades) considerably compared to 2012 as mining volumes Processing plant – gold 5.1 5.9 -13% 5.1 5.9 -13% were reallocated to the deposit following suspension + Town – silver 118.2 135.1 -13% 118.2 135.1 -13% of the Birkachan mine. Ore mined grew more than Mines Recoveries 1 Birkachan twofold to 223 Kt with an average gold grade of 4.8 g/t. Magadan – gold 95.3% 94.2% +1% + 2 Tsokol – silver 88.4% 87.9 % +1% 3 Oroch 4 Sopka Production 5 Dalneye – gold, Koz 115 129 -11% 115 129 -11% Processing plant – silver, Moz 2.6 2.7 -4% 2.6 2.7 -4%
+ Town Gold equivalent, Koz 158 173 -9% 158 173 -9% 30/31 Total cash cost, US$/GE oz 879 892 -1% Adjusted EBITDA, US$m 64 129 -51% Strategic report Operating review continued
OMOLON continued Despite initial mechanical and metallurgical problems in the Polymetal International plc Annual Report 2013 ramp-up, the Amursk POX plant successfully achieved design Mines amursk pox throughput and recovery by October 2013. This was a definitive strategic milestone for us: Polymetal now possesses a unique Birkachan Sopka Oroch Tsokol Dalneye Prognoz Total competitive advantage in the Former Soviet Union, enabling Status Operating Operating Pre-feasibility Operating Development Feasibility us to target untapped refractory gold deposits across the Mineralisation type Vein-veinlet, Vein-veinlet Vein-veinlet Vein-veinlet Vein-veinlet Vein-veinlet region – through both exploration and acquisitions.
stockwork > Unparalleled competitive Mine type Open-pit, Open-pit Open-pit Open-pit Open-pit Open-pit 2013 highlights (open-pit/underground underground advantage in the region mining method) from 2017 During the ramp-up in the final quarter of 2012, we Commencement of mining (year) 2010 2010 NA NA NA NA encountered a number of mechanical and metallurgical problems. Firstly, the presence of chlorine in the process Current life-of-mine end (year) 2020 water caused accelerated corrosion of valves and pipes Reserves Strategic report made of an Inconel alloy in the circuit. It also depressed the Gold equivalent, Moz 0.5 0.4 0.2 0.2 0.2 – 1.5 recoveries in the autoclave due to the preg-grobbing effect. Gold equivalent reserve grade, g/t 4.1 3.9 6.7 7.4 5.4 – 4.8 A programme of remedial measures was developed promptly Resources to address both issues. Gold equivalent, Moz 0.2 0.01 0.3 0.1 0.01 – 0.5 Gold equivalent resource grade, g/t 13.1 3.1 7.8 8.3 4.0 – 8.5 The POX facility was successfully restarted in Q1 2013, although daily concentrate throughput was intentionally limited before May-June 2013 in order to ensure stability of the plant’s operation. Then, during a six-week shutdown the Inconel parts > 2014 Priorities susceptible to corrosion were replaced with more resistant parts made from titanium. The replacement allowed the plant In 2014, at current market prices, we will continue Russia, Khabarovsk Territory to quickly ramp-up to the design concentrate throughput, to operate under the revised mine plans at Omolon. Managing Director: Viktor Nikitanov along with improvement in recoveries to 87% in Q3 compared The Birkachan open pit is expected to be put on Employees: 330 to 75% in Q1. In Q3, the POX plant produced 59 Koz of gold permanent care and maintenance in Q3 2014 after at an average throughput of 444 tonnes per day. a brief mining campaign during the summer in the eastern part of the pit, which has already been reflected in revised After the completion of remedial work to the water treatment reserve and resource estimates. The decision on the timing 127 Kt 94% unit in Q3, full design recoveries were achieved in October. and other parameters of underground mining at Birkachan Concentrate processed POX recovery achieved In Q4 the Amursk POX plant delivered a full quarter of stable is expected to be made in Q4 2014 following the at the Amursk POX in Q4 2013 performance at the design parameters in terms of both completion of in-fill drilling. throughput and recovery. Gold production was 59 Koz in Q4 while average recovery reached 93%. A further The total amount of ore trucked by winter road from optimisation programme is now in place to ensure continuous Open-pit mining at Sopka 159 Koz Sopka and Dalneye to the Kubaka mill is expected Total gold production improvements in the recovery and cost profile of the operation. to increase to 400 Kt in 2014 and support the overall in 2013 Currently, the plant is running at 500 tonnes per day, exceeding grade level in ore processed. its nameplate capacity for Albazino concentrate, with the goal to fast-track processing of accumulated stockpiles.
In 2013, the successful ramp-up process at the Amursk POX plant (and related concentrate de-stockpiling) contributed significantly to the increased gold production at Albazino/ Amursk, which totalled 238 Koz and exceeded original Mines production Nikolaevsk-guidance. Pevek 1 Albazino on-Amur 2 Mayskoye Kherpuchi 2 Mayskoye Albazino + + 1 + Processing plants Oglongi + Town Port Komsomolsk-on-Amur Mines + 1 Albazino Amursk POX Nikolaevsk- 2 Mayskoye Pevek on-Amur 2 Mayskoye Kherpuchi Albazino Processing plants 1 Khabarovsk Albazino + + + 1 + + Town Amursk POX Oglongi Port Vanino Komsomolsk-on-Amur Mines + 1 Albazino Amursk POX 2 Mayskoye
Albazino Processing plants 1 Khabarovsk 32/33 + + Town The Kubaka plant at our Omolon hub Amursk POX Port Vanino Strategic report Operating review continued
Amursk POX continued Production: 2013/2012 statistics Polymetal International plc Annual Report 2013 % Processing plants 2013 2012 change Concentrate processed 127 16 +702% Amursk POX Gold grade in ore processed, g/t 49.8 38.0 +31% Type POX + cyanidation Recoveries 86.0% 78.7% +9% Capacity, tpd 500 Total gold equivalent production, Koz 159 14 +1,0 3 6 %
(Albazino concentrate) Commencement of production (year) 2011 Ore from which mines is processed Concentrate from Concentrate sourced from mines Albazino and Albazino Mayskoye Total Mayskoye Status Operating Construction
Mineralisation type Mineralised Narrow Strategic report The autoclave section at Amursk zones; vein; refractory refractory ore ore Mine type (open-pit/underground, mining method) Open-pit Underground Commencement of mining (year) 2009 2011 Current life of mine end (year) 2021 2022 Reserves Gold, Moz 1.5 2.0 3.5 Gold reserve grade, g/t 5.1 8.8 6.7 Resources Gold, Moz 3.6 4.1 7.7 Gold reserve grade, g/t 4.8 9.9 6.6
> 2014 Priorities An optimisation programme is now in place to ensure continuous improvements in the recovery and cost profile of the POX operation in 2014. In February 2014, we started trial processing of the first batches of Mayskoye concentrate, and the cost/recovery achieved will be one of the key factors in determining the split between in-house processing and off-take for Mayskoye.
The Amursk POX plant
> Amursk POX: development timeline
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
POX plant commissioning, First gold poured in April Maintenance shutdowns Ramping up to full design The POX facility was Six-week shutdown Design throughput Operation at design facilities testing, due to mechanical issues concentrate throughput successfully restarted to replace Inconel by achieved throughput and recovery commencement 6.5 Koz of quarterly and 90% recovery titanium commenced of process automation gold production Continued sales of at the end of May Water treatment unit concentrate to the The plant was shut down expanded and retrofitted Albazino concentrate Resumed concentrate sales Chinese off-taker in late December due Operation at 60% is trucked and stockpiled to a Chinese off-taker in June to the presence of chlorine of design throughput at Amursk 2012 in order to maximise in process water which sales during the ramp-up caused a significant 25 Koz produced of the POX facility decrease in recoveries in April-May
and accelerated corrosion 34/35 Strategic report Operating review continued
Gold production at Albazino/Amursk in 2013 amounted Polymetal International plc Annual Report 2013 to 238 Koz and exceeded the original production guidance, > 2014 Priorities albazino marking the successful completion of the ramp-up process at the Amursk POX plant and related concentrate de- In 2014 we expect to deliver a full year’s stable stockpiling. This was also a result of a robust operating performance in terms both of mining and processing, performance at the open-pit mine and processing plant as well as a healthy cost performance, which will be at Albazino where a considerable increase in throughput underpinned by operation of the POX plant at design to annual run-rate of 1.6 Mtpa was achieved. parameters. No third-party off-take will be required > Solid operating performance for Albazino concentrate from 2014. throughout 2013 Mining The open-pit mine at Albazino continues to run in accordance Our focus within Albazino will be increasingly on the with the mine plan and with a stable grade profile. The amounts geotechnical and feasibility study for new resources and of ore mined increased 10% year-on-year to 1,338 Kt, and their conversion to reserves, with the major reserve update a further increase in mine capacity is expected in 2014 expected by the end of 2014. By that time, we expect to match the increased concentrator throughput. Average to evaluate all available development options for the newly Strategic report Open-pit mining at Albazino grades were 5.5 g/t gold, a 2% increase compared with 2012. discovered ore zones, and make key decisions for the needed plant and POX capacity expansion, as well Processing as the mining method (large open-pit versus underground). Ore processed grew by 23% year-on-year and comprised 1,513 Kt while average gold grade processed increased by 6% to 5.6 g/t. As a result, gold in concentrate produced at Albazino in 2013 increased by 32% year-on-year. This was driven mainly by the considerable increase in plant throughput, where an annual run-rate of 1.6 Mtpa has been achieved since Mining: 2013/2012 statistics the implementation of a number of optimisation and de- Russia, Khabarovsk Territory bottlenecking measures. % Managing director: Alexander Simon 2013 2012 change Employees: 966 Sales to off-takers in China, aimed at sustaining cash flow Stripping, Kt 16,135 15,160 +6% during the period of ramp-up of the Amursk POX plant, Ore mined, Kt 1,338 1,216 +10% increased by 25% year-on-year in 2013 and comprised Gold grade in ore mined 5.5 5.4 +2% 239 Koz 1,513 K t 79 Koz. No further off-take will be required from 2014. Gold in concentrate Ore processed (+23%) In 2013, the construction of an all-year-round road was Production: 2013/2012 statistics produced completed, enabling uninterrupted trucking of concentrate % produced to the Amursk POX plant. Previously, concentrate 2013 2012 change was trucked by winter road in the cold period and barged in Ore processed 1,513 1,226 +23% 238 Koz the summer period. We have also commenced a scheduled Gold grade in ore processed, g/t 5.6 5.3 +6% upgrade of the tailings dam which will be completed in 2014. Total gold production Recoveries to concentrate 88.2% 86.9% +1% (+207%) Concentrate produced, Kt 140 115 +22% Exploration and growth potential Gold grade in concentrate produced, g/t 53.1 49.0 +8% The new resources established at Albazino in 2012 represent significant growth potential for the operation. This may require Gold in concentrate, Koz 239 181 +32% the expansion of the Albazino mine and the concentrator, with Concentrate sold, Kt 49 40 +23% concentrate to be further processed at the Amursk POX plant. Saleable gold in concentrate sold to off-takers, Koz 79 63 +25% In 2013, we focused on the key areas required to prepare the Gold production at Amursk POX 159 14 +1,036% feasibility study for this project. These included geotechnical Total gold equivalent production, Koz 238 77 +207% studies to determine pit slope angle and underground mining Total cash cost, US$/GE oz 790 739 +7% Nikolaevsk- method, additional in-fill drilling, and trade-off studies for coal/ Pevek on-Amur Adjusted EBITDA, US$m (excluding Mayskoye) 103 35 +192% 2 Mayskoye Kherpuchi heavy fuel oil power station. In addition, the outcome of the Albazino + + 1 + Mayskoye concentrate long-term off-take negotiations in 2014 Oglongi will be an important input to the expansion decision. Mine Albazino While the paceMin esof the project has been slowed down and Status Operating Komsomolsk-on-Amur the development decision postponed to the end of 2014 + 1 Albazino Mineralised zones; Amursk POX in response 2 to Mayskoye lower commodities prices, we made significant Mineralisation type refractory ore Mine progress in our geological studies during the year. The Albazino Processing plants Mine type (open-pit/underground mining method) Open-pit 1 Khabarovsk 1 Albazino underground development continued, increasing almost + twofold to 1,137+ Town m in 2013, while the drilling volumes grew Commencement of mining (year) 2009 Amursk POX Processing plants 23% to 40.7 km.Port This included in-fill drilling from both Current life of mine end (year) 2021 Vanino + Town underground and surface at Olga, Nadezhda, and Ekaterina-2 Reserves ore bodies as well as underground ore drifting at Olga. Gold, Moz 1.5 Gold reserve grade, g/t 5.1 We are planning to complete the full feasibility study on the Resources 36/37 Albazino-2 expansion project and consider the development Gold, Moz 3.6 decision in the fourth quarter of 2014. Gold resource grade, g/t 4.8 Strategic report Operating review continued
Mayskoye, a high-grade refractory gold deposit, is one In the meantime, the first batches of concentrate from Polymetal International plc Annual Report 2013 of the top five deposits in Russia in terms of gold resources. Mayskoye were shipped to the Amursk POX in November > 2014 Priorities mayskoye The Mayskoye project consists of an underground mine and trial processing of these commenced at the beginning and an 850 Ktpa on-site flotation concentrator. The ore of 2014. The results of the trial processing will inform the Our focus in 2014 will be on continuous improvement is processed by conventional flotation on site and the decision on the split of concentrate between off-take and of production parameters and cost performance across concentrate produced is then shipped to third-party own processing in 2014. all areas of the operation: in the underground mine, off-takers or the Amursk POX plant. we will focus on reducing dilution through continuous improvement in the drilling/blasting technologies; > Bringing our newest mine The launch and timely ramp-up of Mayskoye, located in the at the processing plant, we will continue to refine the up to speed distant region of Chukotka, was one of the key achievements metallurgical parameters of ore processing for different of the year. The mine delivered the first concentrate to off- ore zones, managing concentrate yield versus recovery. takers in China four months after the start-up of the plant in April 2013, and full ramp-up was completed in six months. By the end of Q2 and the start of the navigation period, we will have completed the test processing of concentrate 2013 highlights from Mayskoye at the Amursk POX plant and renewed Strategic report the off-take contracts for sales of Mayskoye concentrate Mining to China. The split between own-processing and third- The underground mine at Mayskoye has been operational party off-take will be determined based on the relative since the beginning of 2010, with 29,976 m of underground cost/recovery attractiveness of each route. development completed from 2009 through to Q1 2013, and 280 Kt of ore grading 9.2 g/t gold mined before the start-up of the processing plant. Active stoping commenced in early 2013 ahead of the launch of the plant. 667 Kt of ore were Underground mining at Mayskoye mined during the year at an average grade of 7.4 g/t. Grade is expected to improve in 2014 as ore from stopes Russia, Chukotka fully replaces ore from historic development openings. Mining: 2013/2012 statistics Managing Director: Igor Nikolishin % Employees: 980 Plant ramp-up and processing 2013 2012 change The construction was largely completed in 2012 and, in April 2013, the full flowsheet was launched in accordance Underground development, m 9,989 11,068 -10% with the schedule to produce the first batch of refractory gold Ore mined, Kt 667 40 +1,566% 2.0 Moz 8.8 g/t concentrate. During 2013, a number of minor auxiliary facilities Gold grade in ore mined 7.4 9.9 -26% Gold reserves Average reserve grade were commissioned, including fuel storage, an automated security and communication system, and a big-bag Production: 2013/2012 statistics packaging unit. % 2013 2012 change 87 Koz 48 Koz The ramp-up of the plant progressed in line with our Gold in concentrate Gold sold to off-takers Ore processed, Kt 488 – NA original plans and, by October, the plant achieved its design Gold grade in ore processed, g/t 7.1 – NA produced parameters in terms of recovery and throughput. The daily Recoveries to concentrate 77.7% – NA ore throughput amounted to 90-95% of design capacity, while recoveries in Q3 were 86%. Concentrate produced, Kt 49 – NA Gold grade in concentrate produced, g/t 55.3 – NA Towards the end of the year, the Mayskoye concentrator Gold in concentrate, Koz 87 – NA continued to refine Nikolaevsk-the metallurgical parameters of ore Concentrate sold, Kt 30 – NA Pevek Mayskoye on-Amur 2 processingKherpuchi for different ore zones. Throughput stabilised Saleable gold in concentrate sold to off-takers, Koz 48 – NA Albazino + + at design parameters.1 In the meantime, we continued Gold production at Amursk POX – – NA to manage concentrate+ yield versus recovery curve Oglongi Total gold equivalent production, Koz 48 – NA in order to achieve optimal cost performance through Total cash cost, US$/GE oz 957 – NA potential reduction of shipping costs. Mines Komsomolsk-on-Amur Adjusted EBITDA, US$m (4) – NA + 1 Albazino In 2013, a total of 488 Kt of ore with an average gold Mines Amursk POX 2 Mayskoye grade of 7.1 g/t were processed, while average recoveries Mine Albazino 1 Albazino Processing plants 1 comprisedKhabarovsk 78%. Total gold contained in the 49 Kt of Mayskoye 2 Mayskoye + Town concentrate+ produced at Mayskoye during 2013 was 87 Koz. Status Operation Amursk POX Processing plants Port Mineralisation type Narrow vein; refractory ore Vanino Port Sales and downstream processing Shortly after the launch of the processing plant, we signed Mine type (open-pit/underground mining method) Underground two annual export sales contracts with Chinese off-takers Commencement of mining (year) 2011 Processing plants for refractory gold concentrate, produced at the Mayskoye Current life-of-mine end (year) 2022 mine. The off-take allowed us to quickly receive cash flows Reserves Mayskoye concentrator from the project while the Amursk POX plant was focused Gold, Moz 2.0 Type Flotation on achieving design parameters and the de-stockpiling Gold reserve grade, g/t 8.8 of Albazino concentrate. First shipments to the off-takers began Capacity, Ktpa 850 Resources 38/39 in July and continued until mid-November. 30 Kt of concentrate Commencement of production (year) 2013 with 48 Koz of payable gold contained were sold to the Gold, Moz 4.1 Ore from which mines is processed Mayskoye off-takers during the year and included in total gold production. Gold resource grade, g/t 9.9 Strategic report Operating review continued
Khakanja was one of our assets where the mine plans were Polymetal International plc Annual Report 2013 amended mid-year in response to the significant decline in gold > 2014 Priorities khakanja and silver prices. The change was made against the backdrop of a scheduled decline in grades at the main Khakanja deposit. Sustaining the grade profile and extending the life-of-mine Nevertheless, our total production target for the hub remained remain our top priorities for Khakanja in 2014. In the year intact and the cost performance was better than expected due ahead, the development of the underground mine at to increased recoveries and an increased share of high-grade Avlayakan and increasing the volume of ore shipping ore from Ozerny and Avlayakan compared to the previous year. by sea, as well as further growth of mining volumes > Developing new, cost-efficient at Ozerny, will be the key contributors to support the ore sources 2013 highlights volume and grade of ore processed at the Khakanja plant. Mining Mining at Yurievskoye was completed in the beginning of 2013. At the Khakanja open-pit mine, the pushback The Khakanja plant at pit 1 continued, which limited the amounts of ore mined Mining: 2013/2012 statistics Strategic report (down 78% on 2012). Average gold and silver grades in ore mined decreased by 42% and 28%, compared to 2012 Khakanja + Yurievskoye Ozerny Avlayakan Total when ore was mainly sourced from pit 3 and Yurievskoye. % % % % Ore mining is expected to be resumed in Q2 2014. As a result 2013 2012 change 2013 2012 change 2013 2012 change 2013 2012 change of additional studies, the commencement of underground Stripping, Kt 3,096 4,435 -30% 4,714 449 +950% 1,287 1,637 -21% 9,097 6,521 +40% mining at Khakanja has been postponed indefinitely due Underground to geotechnical concerns, with the corresponding reserve development, m – 1,489 -100% – – NA 919 – NA 919 1,489 -38% being reclassified as resource. The resulting reduction in Ore mined, Kt 294 1,359 -78% 319 56 +472% 84 79 +6% 697 1,494 -53% life-of-mine is expected to be compensated for by reserve Metal in ore additions at Ozerny, which are based on the results mined (grades) Russia, Khabarovsk Territory of ongoing step-out drilling. – gold 1.5 2.6 -42% 3.6 4.8 -26% 8.7 15.0 -42% 3.3 3.4 -2% Managing director: Alexander Akamov – silver 141 197 -28% 40 46 -14% 116 124 -6% 92 188 -51% Employees: 1,076 At Avlayakan, open-pit mining ceased in November, one year earlier than originally planned, and underground development (919 m in 2013) commenced ahead of the original Production: 2013/2012 statistics schedule as a result of decisions made following the strategic % 144 Koz 8.1 g /t review. 78 Kt of Avlayakan ore were safely shipped by sea 2013 2012 change Gold equivalent produced Average gold equivalent during the 2013 navigation season, compared to 41 Kt in 2012. Ore processed, Kt 619 622 -1% in 2013 grade in ore processed The average grades in ore mined (8.7 g/t gold and 116 g/t Metal in ore processed (grades) in 2013, g/t silver in 2013) are expected to increase following the ramp-up – gold 5.7 4.8 +19% of the Avlayakan underground mine and the beginning of stoping in 2014. – silver 146.6 277.2 -47% Recoveries 756 At Ozerny, mining works achieved full scale in 2013: stripping – gold 92.3% 95.6% -3% Total cash costs in 2013, volumes increased to 4.7 Mt, more than 10 times over; ore – silver 84.2% 80.0% +5% US$/GE oz mined increased more than five times over to 319 Kt, with Production average grades of 3.6 g/t gold and 40 g/t silver. 139 Kt – gold, Koz 103 91 +14% were trucked to the Khakanja plant by winter road and were – silver, Moz 2.4 4.4 -44% processed in 2013. A further increase in volumes of ore mined 164 -12% and trucked in 2014 is expected and will support the grade Gold equivalent, Koz 144 profile and production levels of the hub as a whole. Total cash cost, US$/GE oz 756 615 +23% Adjusted EBITDA, US$m 85 178 -52% Processing 3 Khakanja Gold production for the full year increased by 14% while Mines 1 silver production decreased by 44% as a result of a structural Khakanja Avlayakan Kirankan Ozerny Total Okhotsk Mines change in the plant’s feedstock year-on-year. Processing 1 Yurievskoye of high silver grade ore from Khakanja’s pit 3 was substituted Status Operating Operating Scoping Operating 2 Avlayakan by ore from Ozerny and Avlayakan. Mineralisation type Vein-veinlet Vein Vein vein zone 3 Ozerny Mine type Open- Open- Open- Open- Processing plant (open-pit/underground pit to be pit to be pit to be pit to be Port mining method) followed by followed by followed by followed by Kiran Mines 2 underground underground underground underground 1 Yurievskoye Processing plants Commencement of mining (year) 2002 2010 NA 2012 2 Avlayakan Current life-of-mine end (year) 2018 3 Ozerny Khakanja plant Reserves Processing plants Type Cyanide leaching and Gold equivalent, Moz 0.1 0.3 – 0.1 0.5 Port Merrill-Crowe Capacity, Ktpa 600 Gold equivalent reserve grade, g/t 2.8 17.8 – 5.4 6.2
Commencement of production (year) 2003 Resources 40/41 Ore from which mines is processed Khakanja, Avlayakan, Gold equivalent, Moz 0.1 0.1 0.03 0.01 0.2 Ozerny Gold equivalent resource grade, g/t 8.9 16.9 6.7 3.9 9.2 Strategic report Operating review continued
Voro continues to be one of the most profitable and effective Processing plants Polymetal International plc Annual Report 2013 mines in our portfolio. This is achieved by a combination > 2014 Priorities voro of an attractive location in the Urals region, with full access Voro CIP to cheap power and infrastructure, and solid operating Carbon-in-pulp The Voro mine was one of Polymetal’s original acquisitions performance. Despite a significant decline in the gold price Type cyanide leaching in 1998 and although it remains one of our lowest cost and during the year, Voro delivered a resounding 61% adjusted Capacity, Ktpa 940 highest margin assets, we remain committed to searching EBITDA margin for 2013. Commencement of production (year) 2005 for new methods of enhancing both its efficiency and profitability. > Ore from which mines is processed Voro Sustaining high performance 2013 highlights and margins Voro heap leach Efforts are under way to identify additional sources Mining Type Heap leaching of primary and oxidised ore, including third-party supplies. The open-pit mine at Voro demonstrated a strong performance and Merrill-Crowe throughout the year. Mining in Q1 traditionally focused on primary Capacity, Ktpa NA At the Voro mine, the start of mining at the Gorevaya zone ore, with a solid improvement in average grade mined allowing Commencement of production (year) 2000 of South Voro is expected in 2014. us to increase the average grade processed to 6.0 g/t. With Strategic report the reduction of the stripping ratio in Q2, ore mined increased Ore source Voro by 76% quarter-on-quarter, mainly represented by oxidised ore from the Southern pit to be used in heap leaching. In Q3 works continued at a stable pace across the Central and Southern pits. The amount of oxidised ore mined nearly doubled Mining: 2013/2012 statistics quarter-on-quarter, in order to supply material for the seasonal Voro Total heap leaching. The amount of ore mined (both primary and % % oxidised) in Q4 was up 6% year-on-year. 2013 2012 change 2013 2012 change Stripping, Kt 11,099 11,265 -1% 11,099 12,265 -1% Total ore mined was 1.79 Mt, 6% up on 2012, with the increase Ore mined, Kt 1,787 1,684 +6% 1,787 1,684 +6% Russia, Sverdlovsk Region split proportionally between primary and oxidised ore. Average – oxidised 981 926 +6% Managing director: Andrey Novikov gold grades in primary ore were stable at 5.7 g/t while average Employees: 960 grades in oxidised ore decreased by 11%, fully in accordance – primary 807 758 +6% with the mine plan. Mining works were concentrated on the Gold grade in ore mined 3.4 3.6 -4% 3.4 3.5 -3% Central (primary ore) and Southern (oxidised ore) pits. – oxidised 1.5 1.7 -11% – primary 5.7 5.8 -1% 503 61% Processing Total cash costs in 2013, Adjusted EBITDA margin In the first half of the year, Voro used third-party sources US$/GE oz (-1%) in 2013 of ore from nearby deposits in order to leverage its processing Production: 2013/2012 statistics capacity. This caused a temporary increase in the cash costs Voro CIP Voro heap leach Total of the operation. Following the decline in the gold price in the % % % 154 Koz second quarter, purchases of third-party ore were discontinued 2013 2012 change 2013 2012 change 2013 2012 change resulting in total cash cost improvement in the second half Ore processed, Kt 924 917 +1% 850 901 -6% 1,774 1,818 -2% Gold equivalent produced of the year. in 2013, Koz Metal in ore processed (grades) – gold 5.7 5.3 +7% 1.4 1.6 -13% 3.6 3.4 +5% Gold production at Voro in 2013 decreased marginally by Recoveries 1% year-on-year and comprised 154 Koz, of which 15% is produced at the heap leaching circuit and the remaining 85% – gold 79.9% 78.9% +1% 73.7% 74.1% 0% at the CIP circuit. The modest grade and throughput decline Production at the heap leaching circuit was fully offset by a 7% increase – gold, Koz 126 118 +7% 23 32 -27% 153 154 -1% in average grade and continued improvements in throughput – silver, Moz 0.1 0.1 -55% 0.02 0.03 -25% 0.1 0.2 -48% (+1%) at the CIP circuit. Gold equivalent, Koz 127 120 +6% 24 33 -27% 154 157 -2% Total cash cost, US$/GE oz 503 506 -1% Ongoing improvement process Adjusted EBITDA, US$m 130 182 -29% In 2013, the Carbon-in-Column (CIC) process was introduced for the extraction of gold from heap leach Mines Karpinsk solutions as changing ore chemistry slowed down Mine + 1 Vorontsovskoye Voro 1 recoveries at the historical Merrill-Crowe circuit. Voro Serov 2 Maminskoye licence area + Status Operating Processing plant Mineralisation type Mineralised zones + Town Mines Mine type (open pit/underground, mining method) Open-pit 1 Voro Commencement of mining (year) 1999 +Nijniy Tagil 2 Maminskoye licence area Current life-of-mine end (year) 2027 Reserves Processing plants Gold equivalent, Moz 1.2 + Ekaterinburg + Town Gold equivalent reserve grade, g/t 2.8 2 Maminskoye
Resources 42/43 Gold equivalent, Moz 0.1 Open-pit mining at Voro Gold equivalent resource grade, g/t 2.1 Strategic report Operating review continued
Since it was acquired in 2009, Varvara has become one Polymetal International plc Annual Report 2013 of our core assets and a stable cash contributor. In 2013, varvara Varvara demonstrated steady operating and financial performance despite challenging market conditions. This is well illustrated by stable total production (despite lower input from third-party ore in 2013) and total cash costs remaining almost flat on the back of the increased efficiency of open-pit mining. > Strong operations delivering A stable contribution 2013 highlights Mining Stripping volumes increased to more than 31 Mt in 2013 (+19% compared with 2012), while the amounts of ore mined decreased to 2.0 Mt due to the ongoing pushback in the Strategic report North-West and North-East pits. This did not have any impact Open-pit mining at Varvara Ore and concentrate stockpiles at Varvara on production during the year due to availability of sufficient ore stockpiles. A new electrical dragline excavator commissioned Mining: 2013/2012 statistics at the beginning of the year increased the efficiency of mining % operations. Average gold grades in ore mined during the year 2013 2012 change have increased by 6% and 28% respectively for float and leach Stripping, Kt 31,053 26,072 +19% ores, while the copper grade declined by 21%, as expected Ore mined, Kt 2,008 3,609 -44% in accordance with the mine plan, to 0.64%. – float ore 499 1,031 -52% Processing – leach ore 1,510 2,577 -41% Kazakhstan, Kostanay Region Throughput at both flotation and leaching circuits in 2013 Metal in ore mined (grades) Managing director: Nikolay Goncharov was stable and comprised 1 Mt for the flotation circuit and – gold, g/t – float ore 1.3 1.3 +6% Employees: 745 2.7 Mt for the leaching circuit. In the flotation circuit, copper – gold, g/t – leach ore 1.2 0.9 +28% recoveries in 2013 decreased by 3% year-on-year, driven – copper, % (float ore) 0.6% 0.8% -21% by significant change in the copper grade profile and related changes in ore technological properties, while gold grades 132 Koz 2030 remained stable. In the leaching circuit, the average grade Production: 2013/2012 statistics Gold equivalent Life of mine grew by 9% compared with 2012 and comprised 1.3 g/t. Varvara – flotation Varvara – leaching Total production in 2013 % % % At Varvara, gold production for 2013 was 107 Koz, 2013 2012 change 2013 2012 change 2013 2012 change up 6% year-on-year. Copper production dropped Ore processed, Kt 1,005 992 +1% 2,671 2,654 +1% 3,676 3,647 +1% 791 to 4.8 Kt as a result of planned grade decline. Metal in ore processed (grades) – gold, g/t 1.3 1.2 +2% 1.3 1.2 +9% 1.3 1.2 +7% Total cash costs in 2013, US$/GE oz – copper, % 0.6% 0.8% -24% – – NA 0.16% 0.20% -22% Recoveries – gold 56% 61% -7% 82% 85% -3% – copper 89% 92% -3% Production – gold, Koz 21 22 -6% 86 79 +9% 107 101 +6% – copper, t 4,841 6,567 -26% 4,841 6,567 -26% > 2014 Priorities Gold equivalent, Koz 45 55 -18% 86 79 +9% 132 134 -2% Kostanay Total cash cost, US$/GE oz 791 795 -1% + Mines By the third quarter of 2014, we expect to complete the Adjusted EBITDA, US$m 74 102 -27% 1 Varvarinskoe pushback in the North-West and North-East pits and return to a normalised stripping ratio. Most of the ore Processing plant during the year will be sourced from the South and Mine 1 + Town Varvara North-East pits. Some decline in grades in the leaching Varvara circuit in 2014 is expected, as in October 2013 Varvara Status Operating discontinued purchases of third-party ore due to its Mineralisation type Stock/stockwork Mines declining quality. Mine type (open-pit/underground, mining method) Open-pit 1 Varvara Commencement of mining (year) 2006 Processing plants Current life-of-mine end (year) 2030 + Town Processing plants Reserves Varvara plant Gold equivalent, Moz 1.9 Type CIP flotation Gold equivalent reserve grade, g/t 1.4
Capacity, Ktpa 3,150 1,050 Resources 44/45 Commencement of production (year) 2002 2001 Gold equivalent, Moz 2.6 Ore source Varvara Varvara Gold equivalent resource grade, g/t 1.7 Strategic report Operating review continued
with the feasibility study, is expected in the second quarter There is also additional mineralised potential of 48 Mt Polymetal International plc Annual Report 2013 of 2014. This will enable the Board to make decisions about for 3.2 Moz of contained 3PGE+Au from 100 to 300 m Sustained further development of the project. depth. Favourable open-pit mining conditions are predicted at an approximately 8 km long reef within Viksha area. Following on from that decision, we are planning to investment commence detailed design and equipment purchases, At Svetlobor, 10.9 km were drilled in 2013; however the as well as construction works in Unchi seaport. exploration work there was slowed down by an ongoing forestry permits process. Drilling should resume in Q3 2014. in standalone 02 Kutyn Kutyn, a licence area located 113 km north-east of Albazino, In 2014, at Semcha, there will be additional drilling currently has open-pittable inferred resources of 5.5 Mt on the tabular PGM-bearing reef on a regular grid along exploration at 4.1 g/t for 0.7 Moz of contained gold (to a depth of the known surface outcrop to a depth of 100 m. 140-240 m). Only 25% of the 120 km2 licence territory has been tested by drilling. The mineralised potential of the zone Exploration activities summary Strategic report (inclusive of resources) is estimated at 10-15 Mt at 2.5-3.5 g/t Drilling, Trenching Level Exploration area at Okhotsk 3 for 1-1.2 Moz of gold (internal non-JORC estimate). km 1,000 m of activity Our decision to sustain our exploration 2013 2012 2013 2012 2014 This deposit has two types of ore – oxidised and sulphide – Greenfield programme and continue to work on the 04 PGM assets with our current exploration efforts fully focused on oxidised Our PGM project now includes two exploration areas: Urals 54.5 13.3 19.0 3.7 next generation of growth assets in the material that can be processed by heap leaching. In 2013 Svetlobor (Urals region, acquired in 2012) and the Maminskoye 25.4 – 3.8 – Intensive we continued step-out and in-fill drilling across all five ore current market environment is a conscious Semcha licence area in Central Karelia, 350 km from zones, and continued scoping works on the flanks of known Urals regional 15.6 8.3 7.0 3.7 Suspended St. Petersburg and 100 km north of Petrozavodsk. Both strategic preference. However, we have mineralisation. Drilling volumes totalled more than 15 km Podolsky – 5.0 – – Suspended areas are in favourable locations in North-West and Central had to slow down some projects and defer compared with 11 km in 2012. In Sedlovinnaya, Rodnikovaya Tamunier 2.6 – – – Completed Russia with easy access to roads and infrastructure. development decisions for key assets and Geophyzicheskaya zones, we continued with Svetlobor (Pt) 10.9 – 8.2 – Intensive technological mapping of ores and metallurgical The mineralised potential of the Semcha licence area (inclusive Far East 24.3 21.3 32.1 127.4 by approximately one year. testing of the assays taken. of resources) was earlier estimated at 315 Mt for 10.0 Moz Kutyn 15.2 11.2 32.1 110.5 Intensive of contained Au-Pt-Pd (non-JORC estimate). In 2013, Svetloye 9.1 1.2 – – Some Construction of a winter road with an extended service period We continued to invest in exploration in 2013 with total metres exploration drilling of more than 4 km was carried out is scheduled for the beginning of 2014. Our exploration efforts Uchama – 3.8 – 10.4 Suspended drilled increasing 72% year-on-year to 194.9 km. Total dollar in Semcha. As a result, we have identified gold/platinum/ in Kutyn will be focused on the identification of additional Prognozny – 5.1 – 6.5 Suspended expenditure on exploration declined, mostly due to the palladium occurrences within a 50 km2 zone, with significant near-surface heap leachable mineralisation including North-West 9.1 8.6 – 0.3 decrease in the unit cost of drilling and a reduction in early- base metal credits (copper, iron, titanium, vanadium). extensions of known ore bodies. Semcha (Pt-Pd) 4.2 – – – Intensive stage activities such as trenching. While some optimisation The Viksha area was discovered in 2013. The width of the portfolio of our greenfield assets took place after the of 3PGE+Au specific horizon varies from 4 to 11 m, with Elmus 4.9 8.6 – 0.3 Some The new JORC reserve and resource statement for Kutyn, decline in gold and silver prices, we have kept the exploration open-pittable mineralised potential of 25 Mt for 1.6 Moz Total 87.9 43.2 51.1 131.4 based on drilling results to date, is expected by the end programme intact for key advanced exploration projects. of contained 3PGE+Au (to a depth of 100 m) identified of 2014. (internal non-JORC estimate). Our current greenfield exploration portfolio is focused on identifying assets with a potential resource base sufficient 03 Maminskoye in grade and size to justify construction of a standalone Maminskoye is located in the Sverdlovsk region of Russia, mine at prevailing commodities prices. We are currently approximately 70 km from the regional capital Ekaterinburg and 30 km from the city of Kamensk-Uralsk (population Omolon hub concentrating on the following key targets: Burgali Map key 130,000). Our Voro mine is approximately 450 km to the north. Olcha + 2 Evensk 01 Svetloye The 17.8 km licence area is accessible by a paved highway Hub and is adjacent to a 10 kV power line. The Maminskoye licence Dukat hub Svetloye is located 220 km south-west of Okhotsk in an Standalone area covers a 1,205 ha (2,978 acre) site which includes the + mining operation undeveloped and sparsely populated region. It has open- Finland Magadan potential mine, processing facilities and a waste rock stockpile. Elmus Ozerny Standalone pittable inferred resources of 4.1 Mt at 5.9 g/t for 0.8 Moz 04 Semcha + exploration projects of contained gold (to a depth of 100 m). The mineralised Khakanja hub Okhotsk + + Petrozavodsk 01 Svetloye Town potential of the zone (inclusive of resources) is estimated Since acquisition in April 2013, our exploration efforts have St.Petersburg + at 30-40 Mt at 1.8-2.2 g/t for 2-2.5 Moz of gold (internal been concentrated on in-fill drilling, with 25.4 km drilled in 2013. non-JORC estimate). Ore bodies have been drilled out to a depth of 200-250 m Kundumi and remain open at depth and along strike in one direction. Kutyn + Moscow Tamunier 02 On-site heap leaching is currently the preferred route On the back of positive exploration results in 2013, probable Albazino ore reserves at Maminskoye were revalued by Polymetal Svetlobor 04 for development of the project. In 2013, we started the + (as at 1 January 2014) to 14.7 Mt of ore at 1.9 g/t gold, Voro Amursk POX hub Komsomolsk-on-Amur construction of a winter road which will enhance access Ekaterinburg + representing 0.9 Moz of contained gold. Mineral resources 03 Maminskoye + to the deposit from the seaport of Unchi. A temporary Russia Khabarovsk storage facility has been built in Unchi. additional to reserves are estimated at 2.1 Mt at 1.4 g/t, representing 0.1 Moz of contained gold. Podolsky +Kostanay In 2013, 9.1 km were drilled in Svetloye with in-fill drilling Varvara China concentrated in the Elena and Emi ore zones. The continuation In 2014, we will continue intensive exploration works at Maminskoye with a significant amount of drilling devoted of drilling programmes at Svetloye is contingent upon the + Astana extension of areas currently covered by the subsoil licence. to down-dip extensions of known high-grade portions Japan of the deposit. Decisions about further development Mongolia As a result of the 2013 and prior-year drilling programmes and Kazakhstan North 46/47 the metallurgical tests performed during the year, an updated of the asset are likely to be taken in 2015. Korea China South audited reserve and resource statement for Svetloye, along Korea Strategic report Sustainability
Our approach Stakeholder engagement Polymetal’s Sustainability Report Polymetal International plc Annual Report 2013 We engage with a wide range of stakeholders, who play We publish our Sustainability Report every two years. Sustainability – Polymetal has been a signatory of the UN Global Compact an important role in helping us define our sustainability If you would like to learn more about our sustainability since 2009 and is also an active member of the UN Global priorities and in providing feedback on our performance. performance, including our compliance with the Global Compact Network Russia. The UN Global Compact It is vital, therefore, that we are open, honest and transparent Reporting Initiative (GRI) framework, our latest Sustainability integral to is a voluntary international standard that commits affiliated in our dealings, and we achieve this by communicating through Report is available to download from our website: companies to comply with its ten principles in the areas a number of different channels, including corporate reporting, www.polymetalinternational.com/sustainable-development. of human rights, labour, environment and anti-corruption, Company news, briefings, hotlines and digital media. The next report, covering our activities during 2013-14, our business and our overall sustainability strategy is designed to meet will be published in 2015. these requirements. We have identified five main stakeholder groups for Polymetal, each with its own specific interest in different Employees From an economic perspective, our objective is to generate aspects of the business: sustainable value for all our stakeholders. We achieve Shareholders and investors: governance, strategy Our employees are integral to the success of Polymetal. We believe that a successful business this by improving operations and providing infrastructure and sustainable financial returns; We employ nearly 9,000 people in our operations in Russia is a sustainable business. Sustainable such as roads and power lines, which in turn deliver wider and Kazakhstan. We nurture their talent and commitment Strategic report benefits for the local community. We provide high-quality Employees: careers, benefits, health and safety, to our business with salary levels that are highly competitive development forms an integral part employment and financial support for local community corporate reputation and clear lines of communication; and a social package that looks after their safety and of our business strategy, contributing initiatives. This significant direct investment, as well Partners and suppliers: fair dealing, openness wellbeing and enhances the lives of their families too. to our global competitiveness and as the payment of national and local taxes, contributes and transparency; to economic development within our key areas of operation. Government: compliance, transparency and our reputation as an efficient and economic development; and We take the management of our environmental performance responsible company. We are firmly very seriously. We recognise that there is a potential risk Communities and NGOs: directing investments, committed to the economic, environmental of negative environmental impact from such a complex, openness and transparency, economic opportunity and long-term relationships. and social wellbeing of our stakeholders geographically diverse business which uses resources and energy, and produces significant quantities of emissions and see this as an investment for and waste. To monitor and manage these environmental risks, Responsibility and risk assessment the future. we have established a management system that complies Sustainability is ultimately the responsibility of our Group with international best practice and national legislation, and CEO, Vitaly Nesis. He is supported by Polymetal’s Technical which achieved certification to ISO 14001 in March 2013. Council which meets each month to monitor, among other issues, performance against our sustainability priorities We operate 120 production sites and processes, each and implementation across our operating companies. with its own inherent risks, so ensuring a safe working Our heads of department report to the Council on matters environment for our employees is a key priority for Polymetal. concerning employees, community outreach, health Our approach to health and safety is underpinned by our and safety and environmental management. Training at the Khakanja plant employee protection and workplace safety management The CEO, Board of Directors and Technical Council, system. This is designed to detect, assess and manage Competitive salaries and benefits production risks and is based on national and international aided by the Internal Audit Department, identify risks to the business and associated management operations. Our salary levels comply with all the legal requirements standards of best practice. We continue to rigorously in Russia and Kazakhstan. However, to attract and reward enhance and improve all aspects of the system. Our risk management process is defined and monitored by the Audit and Risk Committee of the Board. highly skilled staff, we offer salaries that are above the average in each of our operating regions, and in the Russian We set great store by building strong relationships Our sustainability priorities and Kazakhstan mining sectors. We also supplement with the communities in which we operate, recognising this with a highly competitive benefits package. that co-operation with local authorities and their associated Through our risk management and stakeholder engagement communities is crucial to our business. We are a significant programmes we have identified six key sustainability priorities, which are material for the business: In 2013 the Company spent over US$10.2 million to provide employer and creator of infrastructure that impacts benefits, guarantees and compensations under its social • to maintain positive working relationships with local upon adjacent communities and indigenous people. package. The social package includes but is not limited government, NGOs and communities by enhancing As a consequence, we have formalised our approach to: benefits for employees working in remote regions; our partnership agreements and increasing the towards local and indigenous people in our Code housing provision; financial aid; retirement benefits; effectiveness of our investments; of Corporate Governance and Policy on Social travel costs; rotational transportation; kindergarten fees; Investments, with open and regular dialogue. • to attract and retain high-quality people and ensure and compensation for employees (or their families) and improve the quality and terms of their employment; in the case of workplace accidents. Human rights • to further improve our health and safety systems through As supporters of the UN Global Compact and through more sophisticated visualisation, risk management and In 2013 the Company introduced a new scheme our own corporate values, defined in the Polymetal Code more rigorous monitoring, as well as to apply it to our to help motivate and retain qualified employees. Under of Conduct, we apply human rights principles rigorously supplier network; this, the Company assists employees with partial funding for all our employees. We respect the human rights and • to gain third-party certification for our environmental of mortgages to allow them to buy their own house preserve the cultural heritage of the indigenous communities or flat. During the year, 74 employees participated in areas where we operate. We also seek to influence management system and to embed the system into production operations; in the scheme and the Company paid out our partners, contractors and suppliers to apply US$0.1 million of subsidies. the same standards. • to develop cost and energy efficiency programmes; and • to enhance the rigour and transparency of our communications with suppliers, customers 48/49 and partners. Indigenous Minorities of the North from Evensk Strategic report Sustainability continued
Contributing to employees’ wellbeing Suppliers and contractors Polymetal International plc Annual Report 2013 and professional development According to the current health and safety management The Company also focuses on creating and constantly system, all contractors working on site at our operations enhancing social and living conditions, improving our must comply with Polymetal’s health and safety requirements. operating culture, maintaining employees’ health, preventing These obligations, and penalties for non-compliance, work-related diseases, boosting productivity and looking are stipulated within all our contracts. at ways to both motivate current employees and attract additional skilled workers. 2013 2012 Indicators
Accidents 7 4 In 2013 the Company spent over US$4.5 million implementing Incidents 22 22 these measures and covering a range of activities. Injury frequency coefficient 2.4 1.7 The Training Centre at the Dukat operations (Magadan) Lost time injury frequency rate (LTIFR) 1.17 0.8 is certified to carry out internal training and educational Fatal injury frequency rate (FIFR) 0 0.2 activities for 23 professions, and during the year trained Strategic report Quality control at Lunnoye The landscape in the Khabarovsk region 546 employees for 14 professions. In future, we plan to replace 2014 priorities external training with internal training as much as possible. In 2014, our focus will be on improving the efficiency of the risk Last year, eight employees of Polymetal Management and As at 31 December 2013, the Company operates 91 hazardous assessment performed on a shift-by-shift basis, emphasising The Company initiated a number of projects during 2013: Polymetal Engineering qualified as Competent Persons in production facilities. This has reduced since our last report due the key role played by each employee. Before and during the • purchase of wastewater treatment plants for Mayskoye IMMM (the Institute of Materials, Minerals and Mining). This to changes in the classification and registration of hazardous shift, each worker assesses the safety of his/her workplace, to provide the workers’ accommodation camp with expands their opportunities and enables them to communicate facilities under Russian industrial safety legislation. Despite entering the results into a personal risk assessment map clean water; effectively with colleagues from other international mining the overall reduction of hazardous facilities included in the as well as any suggestions on improving working conditions. • construction of solid waste and industrial waste landfill companies. It also expands the Company’s ability to prepare state register, our operations are no less dangerous and every The map is analysed by section managers and provides sites in remote areas at Goltsovoye and Mayskoye; public exploration, mineral resources and ore reserves reports. operation provides its workers with safety-at-work training, more accurate information about working conditions, protective clothing and equipment, and has controls and enabling the response and risk to be managed in a timely • construction of a first-stage sewage system at Mayskoye; Diversity in the workplace processes in place to ensure safety in the workplace manner. We will also be developing hazards visualisation, • reconstruction of ventilation systems at the Omsukchan We believe in nurturing skills and talent regardless of gender. by identifying, analysing and eliminating hazardous on-site and distance training and automated production processing plant and at Lunnoye; We have been actively recruiting and encouraging women and harmful factors. control procedures. within the business and, in 2013, the total number of women • modernisation of the cyanide solutions cleaning system for the Kubaka plant; employed across Polymetal increased by 3.8% from 1,794 Unfortunately, in 2013 there were 11 incidents at operations Environmental performance in 2012 to 1,862. We have also seen a rise in the number within the Group. In eight of these cases the workers had • construction of hydraulic structures for stormwater of women in managerial positions to 285 in total (2012: 250), minor injuries and in two cases were severely injured. In the One of Polymetal’s key priorities is to reduce the environmental drainage at Varvara; and an increase of 14%. eleventh, Polymetal deeply regrets the death at Ozerny open-pit impact of our production processes. In 2013 we updated • completion of an audit carried out by the federal mine (Khakanja hub), where a serious violation of internal and our Environmental Policy to ensure improved efficiency environmental prosecutor’s office confirmed that there Health and safety statutory safety rules by a blastman resulted in his fatal injury. in environmental management systems and continuous had been no violations, following an enquiry from local improvement across all stages of the Company’s exploration, residents and state inspection bodies about possible Safe working conditions are the principal right of all employees The Company has investigated the case and has already mining and processing activities; wherever possible using environmental contamination at the Amursk POX plant. and an indicator of efficient management of an operation. implemented an increase in training, a number of additional modern technology, equipment and working practices safety measures and enforcements to the existing safety to minimise our impact on the environment. The Company We also commenced a programme that requires Polymetal’s policy for ensuring a healthy and safe working rules across its operating mines. The following procedures complies with all regulatory requirements and systematically our contractors to comply with our EMS requirements. environment is implemented through the current health and will be reinforced throughout the Group: monitors safety and management issues to ensure the safety management system. This was developed using the business meets environmental objectives and targets. • on-site and distance training for employees; In 2013 the Company’s expenditure for the implementation fundamentals of international standards, contains advanced of environmental protection measures, along with construction managerial techniques and distributes responsibility across • risk assessment during each shift; As part of this, we have been working towards and reconstruction of facilities with environmental relevance, all levels in order to ensure industrial safety and enable each • hazards visualisation; and international certification of our environmental management amounted to US$8.1 million. Our environmental payments employee to participate in risk management processes. • automated production control. processes. We are pleased to report that, in 2013, to regional budgets for the year totalled US$3.6 million. The system complies with the internationally-recognised Polymetal’s environmental management system (EMS) OHSAS 18001 and all the appropriate Russian Health and safety indicators was independently certified by Bureau Veritas Certification, In February 2014 we began the first stage of a supervisory occupational health and safety standards. Company’s operations in line with international standard ISO 14001-2004. audit to assess the effectiveness of our Company-wide The system supports our commitment and desire to ensure system. This is designed to assess performance against Indicators 2013 2012 In 2013, we continued to improve the health and safety the effectiveness of processes, environmental protection and environmental indicators across the Group and also assess management system, adding new techniques to identify, Accidents 11 11 resource management as well as providing a foundation implementation of the EMS. It will determine the effectiveness manage and visualise operational risks and engender Incidents 0 0 for continuous monitoring and improvement. We also achieved of measures aimed at reducing environmental impacts and a safety culture amongst employees by giving them key roles Emergencies 24 20 an additional certification audit for Mayskoye, which was will put in place plans to correct any inconsistencies identified in assessing the safety and equipment of their workplaces. Injury frequency coefficient 1.2 1,2 launched later during the year. during internal audit. Injury gravity coefficient 23.5 36 Lost time injury frequency rate (LTIFR) 0.57 0.59 Fatal injury frequency rate (FIFR) 0.06 0 50/51 Strategic report Sustainability continued
Greenhouse gas emissions Environmental training Our performance Polymetal International plc Annual Report 2013 As a UK listed company, Polymetal is required to report We invest significant resources into the education and training GHG emissions The use of diesel generators to power our plants, natural gas its greenhouse gas (GHG) emissions, a requirement which of Polymetal employees to raise awareness of and increase (CO2-equivalent tonnes and coal for heating and diesel fuel for vehicles accounts for came into force on 1 October 2013. While we already monitor, knowledge about managing and mitigating the environmental per 10 Kt of ore mined) the bulk of our GHG emissions. 699 manage and aim to minimise our environmental impacts, impacts of the Company. In particular, during 2013 many The increased figures for 2013 are largely due to increased production 542 including GHG emissions, we are now reporting these of our engineers and technicians received training about how at the Amursk plant and the recently launched Mayskoye plant, which according to the new GHG Protocol Corporate Standard to run and audit our environmental management system as both rely significantly on purchased electricity with a higher GHG guidelines, under the following headings: part of our ISO 14001 accreditation. Employees also attended intensity ratio.
• direct GHG emissions; a number of regional and national external courses, ensuring that as a Company we are well informed about industry-wide • indirect power CO -equivalent emissions related 2 developments, and were also involved in internal training 2012 2013 to the generation of power purchased (imported) sessions which supplement ongoing personal development. for the Company’s operations. All air emissions1 Stripping, mined waste storage, ore processing and the use of energy Our plans for 2014 (tonnes per 10 Kt generate air emissions including carbon dioxide and oxides of nitrogen
The Company used ISO 14064 as a framework for defining Strategic report Our 2014 action plan will focus on continuous improvement of ore mined) and sulphur. 7.5 its methodology for GHG reporting. of our environmental management system, including We saw an increase in all air emissions intensity in 2013 as emissions enhancing our efficiency in respect of the most important GHG emissions from heat power plants increased while the stripping volumes remained 4.6 aspects of the environmental impact at each operation the same as last year but the amount of ore mined decreased compared 2013 2012 and the implementation of these priorities in our standard to 2012. Direct GHG emissions,1, 2 t 327,222 345,130 operating procedures. Indirect emissions,3 t 398,144 3 37,401 2012 2013 Total GHG emissions 725,366 682,531 The top-priority tasks aimed at reducing our environmental impact have been identified as: Emissions intensity,4 t/10Kt 699 542 Waste We operate to a set of procedures that are designed to minimise the 1 • upgrading of the water treatment station at Lunnoye plant, CO 2 emissions were calculated according to the reference book ‘International Greenhouse (tonnes per tonne amount of waste produced, maximise the volumes recycled and Gases Emissions Inventory Methodology’ developed by A. Zinchenko from the scientific refining wastewater treatment technologies to reduce the of ore mined) minimise the potential impacts on people and the environment. 8,598 and production corporation Atmosphere in St. Petersburg in 2003. negative impact on the river Levy Bulur; 2 Direct emissions include: direct CO2-equivalent greenhouse gas methane (CH4) During 2013, we have performed several stripping and pushback 6,581 emissions – 536.8 tonnes; direct CO2 emissions produced by combustion of fuel • waste compaction at Albazino to reduce volume campaigns at Omolon, Varvara and Khakanja which increased the (diesel fuel, petrol, gas, coal) when operating own power-generating facilities, automobile for distribution; transport, main and auxiliary mining equipment – 325,560.5 tonnes; direct CO2-equivalent average stripping ratio for the Group as a whole, and, correspondingly, emissions produced by combustion of fuel (diesel fuel, petrol, gas, coal) when operating the amounts of waste mined. own power-generating facilities, automobile transport, main and auxiliary mining • tailings ponds rehabilitation at the Kubaka plant; equipment – 1,124.3 tonnes. • replacement of the gas cleaning section in the CIP section 3 To calculate indirect power CO2 emissions, the Company applies principles stipulated in the UN Framework Convention on Climate Change (signed in more than 180 countries, at Voro to enhance the removal of hydrocyanides from gas; 2012 2013 including the Russian Federation and the Republic of Kazakhstan) and also assumes that power purchased was generated in the region where the Company’s operations are • detoxification of technological solutions at the Voro plant, present. The specific indicators of the indirect power CO2-equivalent emissions that relate aimed at a sustainable use of natural resources and to the generation of power purchased (imported) by the Company’s operations were taken Discharges to The discharge intensity reflects the work done relating to the efficiency from the reference data of the European Bank for Reconstruction and Development entitled a reduced impact on water resources; surface water of our water use and to increase recycling. 4.44 ‘Development of electricity carbon emission factors for Russia. Baseline study for Russia’ • design solutions for expansion of stormwater treatment (tonnes per 10 Kt The indicator remained stable. 4.17 (2010) and ‘Development of electricity carbon emission factors for Kazakhstan. Baseline of ore processed) study for the Republic of Kazakhstan (2012). CO2-equivalent emissions related to the facilities at Voro to increase the volume of sewage treatment; generation of power purchased (imported) by the Company’s operations are calculated
according to formula (3): Eelectr, CO2 = EC*EF, (3); where: Eelectr, CO2 = the amount • commissioning of a household sewage system in order of indirect power CO2-equivalent emissions related to the generation of power purchased to increase sewage efficiency and commissioning (imported) by the Company’s operations, t/year; EC = power purchased (imported) by the Company’s operations, MW*h/year; EF = specific regional carbon emissions of a solid waste and industrial waste landfill at Birkachan ratio for power consumers, tonnes of 2/MW*h. for appropriate storage of these types of waste. 4 GHG emissions intensity indicator = GHG emissions (t)/Ore mined (10 Kt): 2013: 725,365.5 ÷ 1,037.9 = 699; 2012: 682,558,1 : 1,259.1 = 542. 2012 2013
Water resources Energy use Group companies operate in remote areas, subject to extremes of During 2013, we recorded positive trends in water use: both (gigajoules per 100 Kt weather and far from centralised power sources. They must generate a 10% reduction in per unit water consumption, and a 30% of ore processed) their own sources of electricity and heat, which currently necessitates 74.1 76.5 increase in the use of recycled water. The Company now uses significant use of diesel generators. Costs, environmental impacts and twice the amount of recycled water as it does of fresh water. alternatives are constantly reviewed.
In order to reduce any negative impact on water resources, we instigated a number of projects, including: the purchase of devices to purify water used for non-industrial purposes at a number of our sites; construction of hydraulic engineering 2012 2013 facilities to aid stormwater drainage at Varvara; modernisation of the cyanide solutions cleaning system at our Kubaka plant; 1 All air emissions are calculated in accordance with Russian and Kazakh environmental legislation. CO2-equivalent GHG emissions are calculated separately, as according and an extensive programme of works at the Amursk plant to Russian and Kazakh legislation they are not air pollutants. to prevent pollution of surface water. 52/53
Air quality testing at Voro Strategic report Sustainability continued
Community They focus on support for traditional activities, provision of fuel, Polymetal International plc Annual Report 2013 food, vehicles and building materials, educational and cultural At Polymetal, we aim to contribute positively to the economic programmes designed to preserve language and traditions, and social fabric of the communities, regions and countries maintaining and restoring festival and holiday traditions, in which we operate. In fostering mutually sustainable learning about local ecosystems, exchanging knowledge development, we invest substantially in local infrastructure on environmental protection and facilitating exchanges and in enhancing social and cultural welfare. between others in the local area and IMN representatives.
In 2013 we continued to implement our major IMN assistance programmes in areas such as deer farming, and preservation of native language and culture in all operating regions in the Far East, including organisation of traditional ethnic IMN festivals in the Magadan Region and Khabarovsk Territory.
To identify relevant targeted social investments in the Strategic report One of Russia’s top 100 kindegartens at Dukat The Panther youth ice hockey club in the blue strip Khabarovsk Territory, in 2013 we introduced a competition asking public initiative groups to put forward possible social and cultural projects. The winners were the IMN Long-term commitment representatives and their suggestions have been included As a taxpayer and employer in the areas in which we operate, we provide valuable financial stability to local economies. in Polymetal’s 2014 social investment programme. We are also committed to our community investment programme, which is driven by our desire to improve the quality of life of local communities and indigenous people. This is a long-term programme, developed in consultation with local communities, We have also focused on projects related to increasing the which enables us to maintain and enhance local infrastructure and services, retain and increase employment opportunities A traditional Festival of the North celebration at Arka village environmental awareness of the public, involving young people and provide relevant training and education for local people. in activities and undertaking programmes with the population of Khabarovsk Territory and Chukotka. We responded Our goals and achievements in the media and at public meetings to questions raised We recognise that our operations often impact upon local Goals Main achievements in 2013 communities and indigenous people in the areas where in 130 applications from the local population during 2013. we operate. Our Code of Corporate Governance and Policy Strengthen social partnerships We invested US$5.3 million in social and charitable programmes in all areas and paid more than on Social Investments formally set our commitment to respect Investing in communities with local communities, including US$320.7 million in regional and local taxes. Regular charitable assistance and targeted support IMN communities was provided to war veterans and large families. and promote fundamental human rights and the value of Our investment priorities have been determined through cultural heritage. We are committed to operating in accordance feedback from local populations and our experience Following a competition for social and cultural projects in three districts, the best projects have been included in our social programme for 2014. with the UN Global Compact and the UN Declaration on the of working with communities and indigenous people over Rights of Indigenous Peoples. The Code is implemented many years. At least once a year, we evaluate local community Provide comfortable living Construction of a residential house for employees was completed in Amursk. by the management teams in each of our Group companies. requirements through public meetings, questionnaires, conditions and improve quality A number of programmes for the population of certain territories are ongoing: improving the Our operations – and the populations with which we interact – surveys and one-to-one dialogue. This allows us to identify of life for the population quality of children’s facilities; repairing, insulating and equipping 13 children’s facilities; building and in areas where we work are numerous and widespread, including Russia’s Far East, key investment targets and assess the impact of existing equipping children’s playgrounds; management of health services and equipping local hospitals; Northern Urals, Chaun district in Chukotka Autonomous investments. In the main, these investments focus on the and improving living conditions in remote villages. Territory and Taranovka district in Kazakhstan. following activities: Improve the quality of feedback We were very proactive during 2013: holding 15 open meetings with and providing feedback • education and healthcare; and co-operation with local to local populations; holding public hearings on new mining activities and environmental issues; The principles that we adhere to when engaging with local communities and IMN groups conducting public surveys in the Far East; and organising 15 visits to our production sites • infrastructure; by members of the public, local schoolchildren, representatives of environmental protection communities and indigenous people in these locations are: • sports facilities and healthy lifestyle initiatives; and bodies, IMN and veterans. • to be open to ideas and comments from those living • indigenous peoples’ cultural development. Company representatives regularly take part in the work of local commissions on social and and working close to our operations; working partnerships. • to be transparent in our dealings by providing timely, In 2013, these investments totalled about US$5.3 million. Facilitate public access Work on the building, renovation, repairs and equipping of five sporting facilities has been relevant and accurate information on the progress in remote areas to physical completed, as well as three sports grounds for children. Regular support is provided to children’s of corporate and community investment projects; training and sporting events, sport clubs and sport teams. Sporting events bringing together employees and the local population • to take a long-term view of interaction and investment, Social investments in 2013 % and support children’s sports were organised. New sports equipment was supplied to local schools and sport clubs. and put in place systems for identifying investment priorities Provide residents of remote Ongoing support is provided to children’s ecological clubs and scientific research expeditions, and monitoring progress; areas, including IMN, with ecological events and volunteering on Saturdays. opportunities for cultural 6 42 We have funded the repair and equipment of local cultural centres. Cultural/educational projects • to identify and act on the most significant issues for local and creative development 7 included: publishing books about the traditions and culture of IMN; a competition with a cash prize communities and indigenous people – entailing open and for success in learning an indigenous language; and support for local festivals and exhibitions regular dialogue; and ■ Sport of IMN communities. • to provide real and tangible benefits to local communities ■ Education and health 1 Regular tax payments for 2013, not including additional payments for previous tax periods, paid by Polymetal companies excluding the Head office. and indigenous people. ■ Cultural and creative potential 16 ■ Infrastructure ■ IMN Community engagement Our relationship with local communities is based upon 16 agreements relating to socio-economic co-operation 29 with local authorities. In line with our own codes and policies, we also have six agreements in place with Indigenous Minorities of the North (IMN) communities in our Russian
Far East operations. These agreements are drawn up 54/55 in consultation with IMN and local authority representatives. Strategic report Financial review
Highlights Market summary Polymetal International plc Annual Report 2013
• Revenue in 2013 decreased by 8% to US$1,707 million compared to 2012 (‘year-on-year’) as a result of average realised gold Precious metals and silver prices decreasing 19% and 28% respectively year-on-year. This unprecedented price decline was to a significant The year 2013 witnessed significant fluctuations in the precious metals markets, with a reversal of a positive trend that extent offset by 14% growth in the volume of gold equivalent sold. had dominated since 2009. In the first quarter, markets were generally stable, with the gold price fluctuating in the range of US$1,580-1,690/oz. However, in the middle of April gold witnessed one of the sharpest daily and weekly declines of the • Group Total cash cost1 was US$745 per gold equivalent ounce (‘GE oz’), up 8% compared to the 2012 level. Cash costs were past decade, decreasing to US$1,378/oz, and then further dropping to US$1,192/oz by the end of June. This steep decline negatively affected by the elevated level of unit costs and lower recoveries during the ramp-up at the Amursk POX facility and was prompted by significant reductions in ETF holdings and other investment demand sources, and the plans by the US Federal at the newly launched Mayskoye mine, while the mature mines demonstrated resilient cost performance. Total cash costs Reserve to gradually decrease the amount of monetary stimulus to the US economy. Later in the year, the gold price fluctuated in the second half of the year declined by 8% versus the first half of 2013 to US$721/GE oz driven by operational improvements between US$1,193/oz and US$1,420/oz, ending the year at US$1,202/oz on the back of the above-mentioned investor demand at the Albazino/Amursk, where cash costs declined by 27% half-on-half to US$707/GE oz, and Omolon, where as a result factors, offset by a record level of consumer demand, especially from China and India. As a result, the average LBMA gold price of mine plan revision a 32% cash cost reduction to US$756/GE oz was achieved. for the period decreased 16% year-on-year. Silver price dynamics followed gold with an increased level of volatility, dropping • All-in sustaining cash costs1 comprised US$1,086/GE oz and increased slightly by 3% year-on-year, driven mostly by an from US$30.9/oz as at 1 January 2013 to US$19.5/oz as at 31 December 2013. This has also resulted in a further reduction increase in total cash costs during the period, which was largely offset by production growth and reduction of per ounce in the gold/silver price ratio. The average gold/silver price ratio decreased from 1/54 in 2012 to 1/59 in 2013, while
sustaining capital and exploration expenditure at our operating mines. as at 31 December 2013 it was 1/62. Strategic report • Adjusted EBITDA was US$598 million, a decrease of 36%, driven mainly by a decline in commodity prices. Adjusted EBITDA margin was 35%, compared to 50% in 2012. Precious metals market summary • A non-cash pre-tax impairment charge of US$366 million resulting from the decline in gold and silver prices was recorded ■ Gold ■ Silver ■ Gold/silver as at 31 December 2013, mainly due to the write-off of goodwill and mining assets at Varvara, Khakanja and low-grade ore Gold price, US$/oz Silver price, US$/oz, and gold/silver price ratio stockpiles at Omolon. The post-tax amount recorded was US$315 million. The impairment calculations were performed 1,800 70.0 using conservative price assumptions of US$1,200/oz for gold and US$18/oz for silver, which are meaningfully below current spot prices. 1,600 60.0 • As a result of non-cash foreign exchange losses and impairment charges, the Group recorded a net loss of US$198 million 1,400 50.0 in 2013, compared to a US$428 million net profit in 2012. Underlying net earnings (adjusted for the after-tax amount of 1,200 40.0
impairment charges) were US$117 million. 1,000 30.0
• The Group’s liquidity profile remained comfortable. Net debt was US$1,045 and remained almost flat compared to the 2012 800 20.0 level of US$1,037, supported by strong free cash flow generation capacity despite challenging market conditions. Free cash flow1 for the year was US$138 million, remaining flat year-on-year, of which US$263 million was recorded in 2H 2013 on the 600 10.0 back of increased production, significant de-stockpiling, and lower operating and capital expenditure levels. 31 31 28 31 30 31 30 31 31 30 31 30 31 • Based on Net Debt1/Adjusted EBITDA as at 31 December 2013 of 1.75 (31 December 2012: 1.1) and in accordance with the Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 12 13 13 13 13 13 13 13 13 13 13 13 13 Company’s dividend policy, a final dividend of US$0.08 per share representing 30% of the Group’s underlying net earnings for 2H 2013 is proposed by the Board. Foreign exchange 1 The definition and calculation of non-IFRS measures used in this report, including Adjusted EBITDA, Total cash costs, All-in cash costs, Underlying net earnings, Net debt, The Group’s revenues and the majority of its borrowings are denominated in US Dollars, while the majority of the Group’s costs are Free cash flow and the related ratios, is explained in the Financial review section on the following pages. denominated in Russian Roubles. Therefore changes in exchange rates affect its financial results and performance. During 2013, the Russian Rouble depreciated after a moderate strengthening against US Dollar in 2012. From 1 January to 31 December 2013 Financial highlights the Russian Rouble depreciated against the US Dollar by 7.6% from 30.4 RUB/US$ to 32.7 RUB/US$, while the average rate was 1 2013 2012 % change down just 2.3% year-on-year from 31.09 RUB/US$ in 2012 to 31.85 RUB/US$ in 2013 providing a slight benefit to operating profit Revenue, US$m 1,707 1,854 -8% and cash costs. The depreciation of the Rouble had a more pronounced negative effect on the Group’s net earnings in 2013 due Total cash cost, US$/GE oz 745 690 +8% to the effect of retranslating its US Dollar debt to closing rate while the cost performance is yet to reflect the much lower rates in All-in cash cost, US$/GE oz 1,086 1,059 +3% 2014 seen to date. Adjusted EBITDA, US$m 598 932 -36% Adjusted EBITDA margin, % 35% 50% -15% Average realised gold price, US$/oz 1,326 1,640 -19% Average LBMA gold price, US$/oz 1,410 1,668 -16% Average realised silver price, US$/oz 21.6 30.0 -28% Average LBMA silver price, US$/oz 23.8 31.1 -24% Net earnings, US$m (198) 428 NM Underlying net earnings, US$m 117 431 -73% Basic EPS, US$/share (0.51) 1.10 NM Underlying EPS, US$/share 0.30 1.13 -73% Dividend declared during the period, US$/share2 0.32 0.70 -54% Net debt, US$m 1,045 1,037 +1% Net debt/Adjusted EBITDA 1.75 1.11 +57% Net operating cash flow, US$m 462 541 -15% Capital expenditure, US$m 319 397 -20% Free cash flow, US$m 138 138 0%
1 Percentage changes can be different from zero even when absolute amounts are unchanged because of rounding. Likewise, percentage changes can be equal to zero when absolute amounts differ due to the same reason. This note applies to all tables in this release. 2 FY 2013: final dividend for FY 2012 declared in April 2013 and interim dividend proposed for 1H 2013 declared in August 2013. FY 2012: final dividend for FY 2011 declared in April 2012 and special dividend for FY 2012 declared in December 2012. 56/57 Strategic report Financial review continued
Volume Price Operating results Polymetal International plc Annual Report 2013 Sales by metal variance, variance, Year ended 31 December (US$m unless otherwise stated) 2013 2012 % change US$m US$m 2013 2012 % change Gold 1,071 966 +11% 358 (254) Waste mined, Kt 84,956 85,173 0% Average realised price US$/oz 1,326 1,640 -19% Underground development, m 55,339 46,717 +18% Average LMBA closing price US$/oz 1,410 1,668 -16% Ore mined, Kt 10,379 12,591 -18% Share of revenues % 63% 52% Open-pit 7,975 10,937 -27%
Silver 593 833 -29% (13) (228)
Underground 2,404 1,654 +45% Average realised price US$/oz 21.6 30.0 -28% Ore processed, Kt 10,749 9,809 +10% Average LBMA closing price US$/oz 23.8 31.1 -24% Average grade processed, GE g/t 4.6 4.4 +4% Share of revenues % 35% 45% Production Copper 41 53 -23% Gold, Koz 805 589 +37% Share of revenues % 2% 3% Silver, Moz 27.2 26.5 +3% Total metal sales 1,704 1,852 -8% 256 (404) Strategic report Copper, tonnes 4,841 6,567 -26% Other revenue 2 2 +32% 1 Gold equivalent, Koz 1,282 1,063 +21% Total revenue 1,707 1,854 -8% Sales Gold, Koz 808 589 +37% In 2013, revenue declined by 8% year-on-year to US$1.71 billion, driven by a 19% decline in the average realised gold price, while Silver, Moz 27.4 27.8 -2% gold equivalent volume sold was up 14%. Gold sales volumes increased by 37%, and silver sales declined by 2% year-on-year Copper, tonnes 6,141 7,011 -12% while production grew 37% and 3%, respectively. Gold equivalent, Koz2 1,285 1,129 +14% Headcount3 9,232 8,993 +3% The average realised price for gold was US$1,326/oz in 2013, down 19% from US$1,640/oz in 2012, and slightly below the Safety average market price of US$1,410/oz due to a larger volume of Polymetal’s sales recorded in the second half of the year when the market prices had already deteriorated. The average realised silver price was US$21.6/oz, down 28% year-on-year, and LTIFR 0.57 0.59 -3% reflecting market price movements in the same pattern. FIFR 0.06 – NA 1 Based on 1:60 Ag/Au and 5:1 Cu/Au conversion ratios. The share of gold sales as a percentage of total revenue increased from 52% in 2012 to 63% in 2013, with a corresponding 2 Based on actual realised prices. 3 Average for the period. decline in the share of silver sales from 45% to 35%, driven by production and sales volume movements.
The Company has exceeded its original annual production guidance and produced 1,282 Koz of gold equivalent, up 21% Gold equivalent sold, year-on-year. This achievement was driven by the successful ramp-up at the Amursk POX and Mayskoye and strong operational Revenue, US$m Koz (silver for Dukat) delivery at the Dukat hub. Analysis by segment 2013 2012 % change 2013 2012 % change Dukat 532 673 -21% 24,865 22,570 +10% Other developments Voro 215 268 -20% 154 161 -4% In March 2014, the majority of Polymetal’s employees waived their rights under the legacy Executive Incentive Plan adopted Khakanja 203 302 -33% 148 180 -18% in 2010. A new grant of options under the new Long-term Incentive Plan is expected in April 2014 following the issuance of the Varvara 190 215 -12% 140 135 +4% Company’s Annual Report. Omolon 223 296 -25% 162 177 -9% Financial review Albazino/Amursk 294 99 +196% 230 65 +254% Mayskoye 50 – NA 48 – NA Revenue Other 2 0 NA NA NA NA Sales volumes 2013 2012 % change Total revenue 1,707 1,854 -8% 1,285 1,129 +14% Gold Koz 808 589 +37% Silver Moz 27.4 27.8 -2% Revenue by segment Copper t 6,141 7,011 -12% US$m 1 Gold equivalent sold Koz 1,285 1,129 +14% ■ Dukat ■ Voro ■ Khakanja 1 Based on actual realised prices. ■ Varvara ■ Omolon ■ Albazino/Amursk ■ Mayskoye
2013
532 215 203 190 223 294 50 1,707
2012
673 268 302 215 296 99 1,854 58/59 Strategic report Financial review continued
Due to the decline in gold and silver prices during the period, the decline in revenue affected all operating segments of the Polymetal International plc Annual Report 2013 Group, with the exception of Albazino/Amursk where increased production at the POX plant and off-take concentrate sales Cash operating cost structure led to a nearly three-fold increase in dollar sales. Among the mature mines, sales generally followed production dynamics US$m and gold/silver ratio price movements. ■ Consumables and spare parts ■ Services ■ Labour ■ Other expenses ■ Purchase of ore from third parties ■ Mining tax Changes in accounting policies and basis of estimates 2013 Application of IFRIC 20 ‘Stripping Costs in the Production Phase of a Surface Mine’ IFRIC 20 provides guidance on the accounting for the costs of stripping activities during the production phase of a mine.
When the benefit from the stripping activity is improved access to a component of the ore body in future periods, the stripping 286 305 180 5 33 109 919 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. IFRIC 20 became effective for the Group from 1 January 2013. 2012 Prior to adoption of IFRIC 20, the Group’s accounting policy was not to capitalise stripping costs during the production phase. Therefore, as at 1 January 2012 there were no stripping assets on the Group’s balance sheet. The adoption of IFRIC 20 has 260 284 148 7 33 121 852 resulted in the capitalisation of certain stripping costs and a reduction in the cost of sales and inventory recorded in 2012. Strategic report The stripping assets recognised as a result of the application of IFRIC 20 will also affect the level of depreciation charges in future periods. See details in Note 25 to the consolidated financial statements. Total cash costs, adjusted EBITDA and other non-GAAP metrics have been restated accordingly. The capitalised stripping costs in 2013 comprised US$91 million Total cost of sales grew by 32% in 2013 to US$1,124 million, mainly on the back of volume-based growth in production and compared to US$61 million in 2012 and were mainly represented by Omolon, Khakanja and Varvara. sales (21% and 14% year-on-year respectively in gold equivalent terms). Other cost drivers include domestic inflation in Russia (6.5% in 2013), which was only partially offset by Rouble depreciation, and a significant increase in depreciation charges Use of JORC reserves for depreciation calculation as a result of the launch and ramp-up of the Mayskoye concentrator and the Amursk POX plant, which are now both From 1 January 2013, the Group began to use JORC as opposed to GKZ reserves as the basis for unit-of-production in commercial production. depreciation calculations, as management believes this revised basis better reflects the long-term mine plans, which are also being prepared based on JORC reserves estimates. The cost of consumables and spare parts and the cost of services grew by 10% and 7% respectively, with most of the growth being volume-based. Specific cost increases in the period are attributable to consumables and spare parts at the Amursk POX, The increase in profit for the period due to the adoption of IFRIC 20 was almost entirely offset by the change in depreciation which was fully operational during the year and displayed elevated consumption rates due to limited throughput and recovery calculation basis. during the ramp-up process. Amursk POX was the main driver of increased smelting costs during the period.
Cost of sales The total cost of labour within cash operating costs in 2013 was US$180 million, a 22% increase mainly stemming from production volume growth, increase in the rates of payroll tax for highly paid employees, and growth in the average number % Cost of sales (excluding write-downs of metal inventories) (US$m) 2013 2012 change of employees at Amursk and Mayskoye which are now fully in commercial production. On-mine costs 393 363 +8% Mining tax decreased by 10% year-on-year to US$109 million driven by a revenue decrease of 8%. Smelting costs 384 336 +14% Purchase of ore from third parties 33 33 +1% Depreciation and depletion was US$245 million, up 38% year-on-year, mainly as a result of the commencement of commercial Mining tax 109 121 -10% production at the Amursk POX and the Mayskoye concentrator, as well as an increased share of underground mining at Dukat Total cash operating costs 919 852 +8% resulting in increased depreciation of capital underground development costs, and depreciation of capitalised stripping costs. Depreciation and depletion of operating assets 245 178 +38% US$11 million of depreciation and depletion expenses in 2013 which related to ore and concentrate stockpiles was included Rehabilitation expenses 2 4 -53% in metal inventories as at 31 December 2013. Total costs of production 1,167 1,034 +13% In 2013 a net metal inventory increase of US$54 million was recorded (excluding write-downs to net realisable value). In the Increase in metal inventories (54) (187) -71% second half of the year, the Company successfully progressed with scheduled stockpile reductions, with total gold equivalent Write-down of non-metal inventories to net realisable value 11 2 +357% sales meaningfully exceeding production by 54 Koz. De-stockpiling was driven mainly by the Dukat hub, Khakanja and Albazino. Total change in metal inventories (43) (185) -77% Cost of other sales 1 2 -72% General, administrative and selling expenses Total cost of sales 1,124 852 +32% (US$m) 2013 2012 % change Labour 107 92 +16% 2013 2013 2012 2012 Share-based compensation 24 54 -55% Cash operating cost structure US$m % of total US$m % of total Services 19 18 +2% Consumables and spare parts 286 31% 260 30% Depreciation 4 4 -13% Services 305 33% 284 33% Other 14 12 +19% Labour 180 20% 148 17% Total 168 182 -7% Other expenses 5 1% 7 1% Purchase of ore from third and related parties 33 4% 33 4% General, administrative and selling expenses decreased by 7% year-on-year from US$182 million to US$168 million, mainly Mining tax 109 12% 121 14% because of the decrease in share-based compensation. The amount of US$24 million of share-based compensation recognised Total cash operating costs 919 100% 852 100% during 2013 represents the final accrual made in respect of the old Long-term Employee Incentive Programme (‘Old EIP’), which was adopted in 2010 and had a vesting date of 11 June 2013 (or, at the discretion of the participants, 11 June 2014). None of the options vested in June 2013, as the performance conditions (excess of price over strike price of US$16.74 per share) were not met. Further, in March 2014 the majority of employees waived their rights under the Old EIP in order to be able to participate in the new Long-Term Incentive Plan (the ‘New LTIP’). However, the expense previously recognised does not reverse as a credit to the income statement in accordance with IFRS rules as the non-vesting is related to a market-based condition.
Should any remaining options vest in June 2014 at the revised target share price (US$18.75 per share), no additional expense 60/61 will be recognised in the income statement. Strategic report Financial review continued
The New LTIP was approved by the AGM in June 2013 and the first grant of options under the New LTIP is expected to take The table below summarises major factors that have affected the Group’s TCC dynamics year-on-year: Polymetal International plc Annual Report 2013 place in April 2014 following the issuance of the Annual Report. The share-based payment expense in relation to the New LTIP will therefore be recognised after grant in 2014. Reconciliation of TCC movements US$/oz % change Total cash cost per gold equivalent ounce – 2012 690 Labour costs increased by 16% to US$107 million due to planned increases in administrative personnel at the new mines, Domestic inflation 51 7% including Amursk POX and Mayskoye, and payroll tax increases. US$ rate change (16) -2% Mining tax change – Au and Ag price (21) -3% Other expenses
Au/Ag ratio change 31 4% 2013 2012 % change (US$m) Change in average grade processed by mine 22 3% Exploration expenses 24 33 -27% Change in recovery rate (22) -3% Taxes, other than income tax 21 14 +49% Change in share of sales between mines1 11 2% Social payments 11 11 +2% Total cash cost per gold equivalent ounce – 2013 745 8% Loss on disposal of property, plant and equipment 10 9 +2% 1 Effect of mix change between mines with different cost levels. Strategic report Housing and communal services 7 8 -17% Bad debt allowance 1 – +100% Total cash cost by mine: Additional mining taxes, penalties and accrued interest 1 66 -99% • Dukat’s total cash cost per silver equivalent ounce sold decreased by 5% year-on-year to US$11.6/ oz. This has been achieved Other expenses 15 13 +19% on the back of sustainably strong grades and recoveries at the Omsukchan concentrator and increased throughput at both Total 88 154 -42% Omsukchan and Lunnoye plants. • At Voro, which continues to be our lowest cost operation, cash costs decreased further by 1% compared to 2012, Other expenses decreased from US$154 million in 2012 to US$88 million in 2013. There were no additional mining tax charges, to US$503/GE oz, despite a moderate decrease in total gold equivalent production. Cost performance was supported including penalties and accrued interest recognised in 2013, and there were no material changes to the provisions previously by grade profile of the primary ore processed during the period and the higher share of gold produced at the CIP plant recognised. The decrease in exploration expenses from US$33 million in 2012 to US$24 million in 2013 is mainly due to a lower versus heap leaching, as well as by robust operating performance of the mine. amount of exploration costs written off as generating no future benefits. • Khakanja’s TCC was US$756/GE oz, a 23% increase year-on-year. This cost increase was driven by a scheduled decline in average grade processed (from 9.4 g/t to 8.1 GE g/t year-on-year), and a higher share of relatively high-cost ore from Total cash costs by mine Avlayakan processed during the second half of the year. Cash cost per GE ounce, Gold equivalent sold, Koz US$/oz (silver for Dukat) • At Varvara, TCC was US$791/GE oz, decreasing by 1% year-on-year. This decrease was achieved on the back of a stable grade profile and open-pit mine productivity improvements with the introduction of the new dragline excavator. Total cash costs per gold equivalent ounce1 2013 2012 % change 2013 2012 % change Dukat (silver equivalent oz) 11.6 12.1 -5% 24,865 22,570 +10% • At Omolon, TCC amounted to US$879/GE oz, remaining almost flat compared to the 2012 level despite a moderate decline in average grades and production. The improvement in cost performance was mainly achieved in the second half of the year Voro 503 506 -1% 154 161 -4% as a result of implemented changes to the mine plan following the decrease in gold and silver prices. A higher share of higher Khakanja 756 615 +23% 148 180 -18% grade ore from Sopka and Tsokol, as well as suspension of mining at Birkachan during the year, contributed to the Varvara 791 795 -1% 140 135 +4% cost reduction. Omolon 879 892 -1% 162 177 -9% • At Albazino/Amursk, TCC was US$790/GE oz, up 7% compared to 2012, due to lower throughput and recoveries at the Albazino 790 739 +7% 230 65 +254% Amursk POX in the first half of the year before the remedial actions were implemented. TCC improved considerably over Mayskoye 957 – NM 48 – NM the second half of the year as the POX plant reached design throughput and recovery levels. This was further supported Total 745 690 +8% 1,285 1,129 +14% by significant concentrate de-stockpiling through a combination of sales to third-party off-takers and accelerated concentrate
1 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 processing at the POX plant after achieving design parameters. 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 • TCC at Mayskoye was US$957/GE oz, with the high level mainly associated with cost inefficiencies inherent in the ramp-up relevant period. Total cash cost per gold equivalent ounce sold is calculated as total cash costs divided by total gold equivalent unit ounces sold. period of the processing plant (lower average throughput and recoveries) and a lower grade of ore processed during the ramp-up period. Cost levels in 2014 are set to improve as Mayskoye delivers its first full year of production. Total cash costs US$/GE oz All-in sustaining cash costs1 ■ 2012 ■ 2013 Total, US$m US$/GE oz 2013 2012 % change 2013 2012 % change 957 892 879 Total cash costs 957 779 +23% 745 690 +8% 795 791 790 756 SG&A and other operating expenses not included in TCC 142 146 -2% 111 129 -14% 12.1 739 745 11.6 690 615 Capital expenditure excluding new projects 256 237 +8% 199 210 -5%
506 503 Exploration expenditure (capital and current) 41 33 +25% 32 29 +9% All-in sustaining cash costs 1,396 1,195 +17% 1,086 1,059 +3% Finance cost 49 41 +19% 38 36 +5% Income tax expense 40 223 -82% 31 197 -84% After-tax All-in cash costs 1,485 1,459 +2% 1,156 1,292 -11%
Dukat1 Voro Khakanja Varvara Omolon Albazino Mayskoye Total Development capital 60 163 -63% 47 144 -67% SG&A and other expenses for development assets 7 12 -43% 5 10 -50% 1 Silver equivalent oz for Dukat. All-in costs 1,552 1,633 -5% 1,208 1,447 -17% In 2013 the total cash costs per gold equivalent ounce sold (‘TCC’) were US$745/GE oz, up 8% year-on-year due to elevated 1 All-in sustaining cash costs comprise total cash costs, all selling, general and administrative (‘SGRA’) expenses for operating mines and head office not included in TCC (mainly represented cost levels at the Amursk POX and Mayskoye plants during their ramp-up periods, combined with a higher share of these 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 segments in total production and sales. for operating mines (i.e. excluding new project Capex, but including all exploration expenditure (both expensed and capitalised in the period) and minor brownfield expansions). 62/63 Strategic report Financial review continued
1 All-in sustaining cash costs amounted to US$1,086 in 2013 and increased by 3% year-on-year, with the increase in total Adjusted ebitda and ebitda margin Polymetal International plc Annual Report 2013 cash costs substantially offset by reduction of per ounce SG&A, sustaining Capex and exploration expenditure. Reconciliation of Adjusted EBITDA (US$m) 2013 2012 % change Net earnings (198) 428 NM Impairment charges Finance cost (net) 40 22 +80% Other operating Corporate Income tax expense 40 223 -82% (US$m) Khakanja Varvara Omolon Mayskoye segments and other Total Depreciation and depletion 238 142 +68% Goodwill 13 63 – – – – 76 EBITDA 120 815 -85%
Mining assets 91 17 17 – – – 125 Impairment of inventories 153 4 NM Metal inventories 28 19 75 16 15 – 153 Impairment of goodwill and mining assets 201 – 100% Investments in associates – – – – – 12 12 Impairment of investment in associate 12 – 100% Total impairment charges 132 99 92 16 15 12 366 Share-based compensation 24 54 -57% Exchange gains/losses 74 (7) NM
In accordance with IFRS requirements, Polymetal conducts impairment tests for its goodwill, property, plant and equipment, Change in fair value of contingent liability (8) 5 NM Strategic report other non-current assets and inventories at each reporting date. Rehabilitation costs 2 3 -46% Write-down of non-metal inventory 11 2 +357% Following a significant decline in market prices for gold and silver in 2013, a total pre-tax impairment charge of US$366 million Gain on disposal of subsidiary/bargain purchase gain 9 (10) NM (equivalent to a post-tax amount of US$315 million) was recorded in the consolidated financial statements as a result of these impairment tests. Additional impairment charges recognised in the second half of 2013 were US$61 million and mainly resulted Additional tax charges according to the Supreme Arbitration Court decision 1 66 -99% from the re-optimisation of mine plans at the Omolon hub and write-off of low-grade ore stockpiles across our operations. Adjusted EBITDA 598 932 -36%
Polymetal used conservative price assumptions in the tests performed, with the following flat forward real prices meaningfully Adjusted EBITDA by segment (US$m) 2013 2012 % change below the current spot prices: Dukat 229 378 -39% • Gold – US$1,200/oz Voro 130 182 -29% • Silver – US$18/oz Khakanja 85 178 -52% • Copper – US$7,000/tonne. Varvara 74 102 -27% Omolon 64 129 -51% The following major impairment losses were recognised: Albazino/Amursk 103 35 +192% • An impairment of US$132 million in respect of Khakanja hub assets, including US$104 million of goodwill and mining assets Mayskoye (4) (12) -63% and US$28 million of ore stockpiles. The impairment mainly relates to the value of Avlayakan mining assets, which were Corporate and other and intersegment operations (82) (59) +36% acquired in 2009 for stock then valued at US$60 million with a view to establishing resources sufficient for a standalone mine. Total 598 932 -36%
Currently the asset operates as a satellite mine to Khakanja, which generates a significant amount of trucking and shipping 1 The Company defines Adjusted EBITDA (a non-IFRS measure) as profit for the period adjusted for depreciation expense, rehabilitation expenses, write-down of inventory to net realisable costs which are offsetting (at the prices used) the high reserve grade of the deposit. Ore impairment is also mainly represented value, share-based compensation, listing expenses, gains and losses on acquisitions and disposals, foreign exchange gain/(loss), change in fair value of derivatives, change in fair value of contingent consideration, finance income, finance costs, and income tax expense. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue. The figures presented above have by the existing stockpiles of Avlayakan ore and low-grade ore from Khakanja. The ongoing shift to underground mining will been rounded and accordingly may not sum to the total shown. enable an increase in grade profile and improve cost levels accordingly. • An impairment of US$99 million was incurred in respect of Varvara, mainly represented by goodwill write-off. Due to the relatively low grade ore, Varvara operations are more sensitive to gold and copper prices. The impairment model does not Adjusted EBITDA margin include any purchased third-party ore (due to the short-term nature of the purchase arrangements), which represented about % ■ ■ 20% of gold equivalent production at Varvara in 2012 and 16% in 2013, and was an important contribution to the economics 2012 2013 68 of the asset by leveraging existing processing capacity. Goodwill on the original purchase transaction arose mainly due to this 61 59 additional contribution, which was assessed when estimating the purchase consideration paid. 56 50 47 • An impairment of US$92 million was recorded in respect of Omolon hub assets, mainly represented by a US$75 million 43 42 44 39 write-off of the low-grade ore stockpiles at Sopka (written off) and Birkachan (net realisable value reduced to reflect lower price 36 35 35 assumptions). The impairment model assumes that Polymetal will not proceed with the Sopka heap leach at the prices used, 29 due to a lower than required return on the capital that needs to be invested in the start of the facility, and therefore assigns zero value to the low-grade ore stockpiles accumulated for heap leaching. However, the construction of the heap leach at Birkachan is already completed and leaching is planned from 2014. At the assumed prices of US$1,200/oz for gold and US$18/oz 0 for silver this would result in positive cash flow contribution, making processing of these stockpiles economic. -9 • At Mayskoye, an US$16 million write-down of inventories is represented by relatively low-grade and high-cost concentrate Dukat Voro Khakanja Varvara Omolon Albazino/ Mayskoye Total produced during the first months of the concentrator operation, with higher costs inherently associated with the ramp-up Amursk of the processing facility. The source of impairment is expected to be non-recurring as Mayskoye had achieved design throughput and recovery by the end of 2013. In 2013, Adjusted EBITDA was US$598 million, 36% lower year-on-year, with adjusted EBITDA margin of 35%. The decrease • A total US$15 million impairment of ore stockpiles was recorded at Dukat and Voro and was represented by marginal was mainly driven by a 19% reduction in the average realised gold price and a 28% reduction in the average realised silver low-grade material. price, as well as a 8% increase in total cash costs. The Albazino/Amursk hub increased the Adjusted EBITDA almost threefold • Polymetal has also written off its investment in its associate Ural-Polymetal totalling US$12 million, having assessed year-on-year due to significant production and sales growth, and Adjusted EBITDA at other segments declined year-on-year the enterprise value using the assumptions above. on the back of price-driven revenue decrease. 64/65 Strategic report Financial review continued
Other income statement items Polymetal International plc Annual Report 2013 Polymetal recorded a net foreign exchange loss in 2013 of US$74 million compared to a gain of US$7 million in 2012. These Capital expenditure unrealised non-cash losses represent the appreciation of the Group’s mostly US-Dollar-denominated borrowings against the US$m Russian Rouble, the functional currency of all Group companies other than Varvara. The Group’s average gross debt during ■ Mayskoye ■ Dukat ■ Albazino/Amursk ■ Omolon 2013 was US$987 million, with more than 95% denominated in US Dollars, while the US Dollar appreciated against the Russian ■ Varvara ■ Khakanja ■ Voro ■ Exploration ■ ■ ■ Rouble by 8.0% during the period, from 30.4 RUB/US$ at 31 December 2012 to 32.7 RUB/US$ as at 31 December 2013. Corporate and other Capitalised stripping Capitalised interest In 2014, this exchange rate dynamic has continued and is expected to have a more meaningful positive effect on operating 2013 cash cost levels.
54 37 36 22 23 14 8 59 6 89 6 357 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 the financial reporting, Polymetal believes that the underlying matching of revenue cash flows against 2012 debt repayments and related interest represents an economically effective hedging strategy. 66 49 79 40 16 2011 68 8 61 14 433 Net earnings, earnings per share and dividends Strategic report The Group recorded a net loss of US$198 million in 2013 versus a net profit of US$428 million in 2012. The loss resulted mainly from non-cash impairment charges (pre-tax amount of US$366 million, equal to after-tax amount of US$315 million), unrealised foreign exchange losses in 2013 versus smaller absolute gains in 2012, and the decrease in Adjusted EBITDA. In 2013, total capital expenditure was US$357 million, down 18% year-on-year. All of the Group’s major investment projects are now complete with the launch of the Mayskoye concentrator in April 2013. Consequently, starting from 2H 2013 the bulk Underlying net earnings (excluding the after-tax impact of impairment charges) were US$117 million, compared of the Group’s capital expenditure is now related to stay-in-business spending and exploration. In addition, the implementation to US$431 million in 2012. The decrease in underlying net earnings was mainly a result of a decrease in adjusted EBITDA of IFRIC 20 (refer to ‘Changes in accounting policies’ above) resulted in the partial capitalisation of production-phase stripping by US$334 million year-on-year, as well as the effects of foreign exchange. costs, all of which were previously expensed. Capital expenditure excluding stripping costs would have been US$265 million in 2013 (2012: US$372 million). Basic earnings per share were a loss of US$0.51 per share compared to earnings of US$1.10 per share in 2012. Underlying basic EPS was US$0.30 per share, compared to US$1.13 per share in 2012. The major capital expenditure items in 2013 were: In accordance with the Company’s dividend policy, the Board is proposing to pay a final dividend of US$0.08 per share • US$54 million was spent on completion of construction of the processing plant at Mayskoye and sustaining capital expenditure representing approximately 30% of the Group’s underlying net earnings for the period. During 2013, Polymetal paid a total for the newly launched mine. The concentrator was launched in April 2013, and by the end of the year the ramp-up process of US$316 million in dividends, representing special and final dividends for FY 2012 and interim dividends for 1H 2013. was complete. • US$36 million was invested at Albazino/Amursk, mostly related to mining fleet expansion and continued underground Capital expenditure exploration activities at Albazino, as well as investing in equipment upgrades at the Amursk POX. (US$m) 2013 2012 % change • Capital expenditure at Dukat was US$37 million, down 24% year-on-year, and is mainly represented by expansion Mayskoye 54 66 -19% of underground operations and maintenance Capex at the Lunnoye and Omsukchan plants. Dukat 37 49 -24% • At Varvara, capital expenditure was US$21 million and is mainly related to the expansion of the mining fleet, including Amursk/Albazino 36 79 -54% an electrical dragline excavator commissioned in Q1 2013. Omolon 22 40 -44% • At Omolon, capital expenditures declined by 44% year-on-year to US$22 million due to revision of the mine plans and Varvara 21 16 +37% suspension of the Birkachan mine, as well as due to postponement of the Sopka and Birkachan heap leaching projects. Khakanja 14 20 -28% The actual expenditure during 2013 is mainly related to development of Dalneye open-pit mine and maintenance Capex. Voro 8 11 -27% • Across the other mature mines, Khakanja and Voro, capital expenditures declined year-on-year and were mainly represented Exploration 59 68 -13% by mining fleet upgrades/replacements and maintenance expenditure at the processing facilities. Corporate and other 6 8 -22% • The Company continues to invest in standalone exploration projects. Capital expenditure on exploration in 2013 was Capitalised stripping 91 61 +51% US$59 million compared to US$68 million in 2012, and focused mostly on Maminskoye, Svetloye, and Kutyn. Capitalised interest 6 14 -57% • Capitalised stripping costs totalled US$91 million in 2013 (2012: US$61 million) and are attributable to operations with stripping Total capital expenditure1 357 433 -18% ratios during the period exceeding their life-of-mine (‘LOM’) averages, including most importantly Khakanja, Omolon and Varvara. The capitalisation of stripping costs at Omolon and Varvara has resulted in increased impairment charges recorded 1 Total capital expenditure includes amounts payable at the end of the period. On a cash basis, capital expenditure was US$319 million in 2013 (2012: US$397 million). The difference with the one on the accrual basis is mostly due to depreciation of US$33 million (2012: US$26 million) capitalised into exploration and stripping assets. in respect of those segments’ mining assets (refer to ‘Impairment charges’ above). • Total capital expenditure includes US$6 million of capitalised interest (2012: US$14 million), which declined materially as the Group has already commissioned all of its major growth assets, and led to an increase in finance costs recognised in profit and loss. 66/67 Strategic report Financial review continued
Cash flows The Group continues to maintain a comfortable liquidity and funding profile in the current turbulent market environment. Polymetal International plc Annual Report 2013 (US$m) 2013 2012 % change The Group’s net debt was almost flat and comprised US$1,045 million as of 31 December 2013, representing a net debt/ adjusted EBITDA ratio of 1.75. Operating cash flows before changes in working capital 450 724 -38% Changes in working capital 12 (184) NM The Group maintains a healthy debt structure, which is comfortable from both the liquidity and cost standpoints. In the second Total operating cash flows 462 541 -15% half of the year, the Group refinanced a total of US$400 million of its short-term borrowings into long-term facilities. As a result, Capital expenditure (319) (397) -20% the proportion of long-term borrowings increased from 48% as at 30 June 2013 to 93% as at 31 December 2013. This new Other (5) (6) -16% borrowing facility led to a significant improvement of the Group’s debt maturity profile now extending to more than three years.
Investing cash flows (324) (403) -19% Financing cash flows In addition, as at 31 December 2013 the Group had US$1.6 billion of available undrawn facilities from a wide range of lenders, which maintains its operational flexibility in the current environment. Net increase in borrowings 213 (149) -243% MTO and squeeze-out obligation repayment – (569) -100% The average cost of debt remained low at 2.99% in 2013 (2012: 3.06%), supported by low base interest rates and the ability Dividends paid (316) (77) +313% to negotiate competitive premiums on the back of the solid financial position of the Company and Polymetal’s excellent Total financing cash flows (104) (794) -87% credit history. Strategic report Net decrease/increase in cash and cash equivalents 34 (656) NM Cash and cash equivalents at the beginning of the year 19 659 -97% 2014 year outlook Effect of foreign exchange rate changes on cash and cash equivalents 13 16 -20% While we recognise that our financial performance will significantly depend on commodity price movements in the year ahead, Cash and cash equivalents at the end of the year 66 19 +252% Polymetal expects to deliver a resilient financial performance at the current price levels which will be driven by the following factors: • the Company is fully equipped to deliver on its production guidance of 1.3 Moz of gold equivalent for 2014; Operating cash flows in 2013 were under pressure from declining commodities prices. Operating cash flows before changes in working capital decreased by 38% year-on-year to US$450 million as a result of adjusted EBITDA decrease. Net operating • in 2014, Polymetal expects total cash costs of US$700-750/GE oz and all-in sustaining cash costs of US$975-1,025/GE oz, cash flows were US$462 million, compared to US$541 million in 2012, and were almost unaffected by changes in working which will be supported by the ongoing devaluation of the Russian Rouble and Kazakh Tenge; capital in 2013 (the increase in working capital in 2012 was US$184 million) despite a meaningful increase in production • capital expenditure will decline further to US$250 million (including exploration and capitalised stripping) as there will be volumes and scope of operations. no major investment in growth projects before project development decisions are taken closer to the end of the financial year.
Total cash and cash equivalents increased from US$19 million as at 31 December 2012 to US$66 million as at 31 December 2013, with the following items affecting the cash position of the Group: • operating cash flows of US$462 million; • investment cash outflows of US$324 million, down 19% year-on-year and mainly represented by capital expenditure (down 20% year-on-year to US$319 million); • payment of special and regular dividends for 2012 amounting to US$316 million; and • an increase in borrowings of US$213 million.
Balance sheet, liquidity and funding 31 December 31 December (US$m) 2013 2012 % change Short-term debt and current portion of long-term debt 81 244 -67% Long-term debt 1,030 620 +66% Dividends payable – 191 -100% Gross debt 1,111 1,055 +5% Less: cash and cash equivalents 66 19 +252% Net debt 1,045 1,037 +1% Net debt/adjusted EBITDA 1.75 1.11 +59% 68/69 Strategic report Risks and risk management
is driven by the Company’s Board of Directors and runs Polymetal International plc Annual Report 2013 through all our management, employee and connected > Impact/financial consequences Effective risk stakeholder activities – from developing strategy to day-to-day operations.
Risk category Risk description and potential effect Risk response Risk category Risk description and potential effect Risk response Polymetal International plc Annual Report 2013 2.4 Risk of underperformance against production A contractors’ performance control system is designed, implemented 8 Major pollution arising from operations could The Company has implemented an eco-management system Production risks – plan, of exceeding available resources: budget and applied. Environmental risk include deforestation, air and water pollution with meets international standards, and compliance certificates reliance on overspending, delayed results. and land contamination. Potential impacts have been received. include fines and penalties, statutory liability for contractors The Company implements a number of initiatives to monitor and limit environmental redemption and other financial the impact of its operations on the environment, including external consequences, which may be significant. 3 Due to frequent changes in tax legislation in The Company’s policy is to comply fully with the requirements expert assessment of pollution generated and adopting best practice
Russia and Kazakhstan, a lack of established of applicable tax laws, providing adequate controls over tax accounting in the industry for its corporate policies and procedures.
Tax risk practices in tax law means that additional costs and tax reporting. such as taxes or penalties may arise. Given the prevailing practice accepted by arbitration courts when 9 The Group invests considerable resources in gold Rigorous due diligence procedures are applied to the evaluation and execution of all acquisitions to assess the consequences of the The most recent Russian government initiatives deciding on certain cases in tax disputes in 2012-13, as well as Mergers and mining assets and operations in the Russian acquisition, based on economic, ecological, political and social factors. include significant amendments to tax law particular outcomes of tax disputes involving Kazakh and Russian acquisitions risks Federation and Kazakhstan. There is a risk of failure to achieve the expected benefits from governing operations with entities from subsidiaries of the Group, the tax risk is assessed as ‘High’. Board and/or shareholder approval is required for any acquisition. off-shore jurisdictions. any acquisition in the case of adverse changes The consolidated financial statements reflect provisions booked in assumptions or any inaccuracy of estimates
The taxation risk level correlates with legal and in connection with the Company’s evaluation of tax risks. made, or where the information used for Strategic report political risks levels. To date the Company is not aware of any significant outstanding tax decision-making was incomplete or inaccurate. claims which could lead to additional taxes accruing in the future Failure to deliver expected benefits from an (except for amounts already booked or disclosed in the Group’s acquisition can results in adverse financial financial statements). performance, lower planned production volumes or problems with product quality. 4 Exploration and development are time- and Risk and uncertainty are inherent in exploration and development activities. Exploration risks capital-intensive activities and may involve a high 10 Operating in developing countries such as Russia Polymetal has a successful track record of operating in both the degree of risk, but are necessary for future Russian and Kazakh jurisdictions, having developed its own expertise The Group invests considerable amounts in focused exploration Legal risk and Kazakhstan involves the risk that changes growth. Failure to discover new reserves of projects to obtain sufficient information about the quantity and in tax and other legislation may occur from time in corporate, tax, licensing and other legal areas. sufficient magnitude could adversely affect the to time. The most sensitive areas are regulation quality of expected reserves and to estimate expected cash flows. The Group’s financial and legal teams monitor current legislation Company’s results. of foreign investments, private property, The Group’s team of geologists and engineering specialists has and proposed changes and incorporate these into their practice. Exploration risks include exploration site a track record of successful greenfield and brownfield exploration environmental protection and taxation. Corporate and operational management teams are responsible for selection, defining the optimal method of leading to subsequent development of exploration fields for In recent years, however, the governments meeting legal requirements in their operating activities. Head office exploration, licensing and permits, exploration commercial production. of both Russia and Kazakhstan have become and on-site legal teams ensure appropriate controls over process supply (staff, equipment etc.), exploration more consistent regarding the introduction compliance issues. contractors’ performance control and reporting. of new regulations and taxes, demonstrating Potential effects include financial losses due to an awareness of investment climate issues. The Group takes into account the results of tax audits and court rulings poor exploration results on selected properties, However, in the application of existing legislation when interpreting taxation rules and determining future tax positions. financial losses or unreliable exploration results requiring interpretation, courts often uphold the due to use of incorrect exploration methods, more assertive position of the tax authorities, inefficient use of the resources available or/and which does not always coincide with the not achieving the reserve/resource targets set. Company’s position.
Failure to achieve the return required from major The Company implements global best practice in project management. 11 Operating in Russia and Kazakhstan involves The Group actively monitors political developments on an ongoing basis. 5 some risk of political instability, which may include capital expenditure projects, such as building The Group’s engineering team is responsible for the oversight of capital Political risk We aim to maintain open working relationships with local authorities Construction and changes in government, negative policy shifts, development risk new mines and processing facilities or production expenditure projects, including project support, co-ordination of service in the countries where we operate. capacity increase/renovation at existing mines, organisations, contractors, constructors and co-operation with international sanctions and civil unrest. These may as a result of failure to meet project delivery regulatory bodies. have an adverse effect on the Group’s market timeline and budgets, could adversely affect the value and operating environment. Significant elements of our exploration and development projects Group’s financial results, cash flow position and are performed by the Group in-house by Polymetal Engineering, increase capital costs. 12.1 The inability to raise sufficient funds to meet The Group’s treasury function is responsible for ensuring that there a subsidiary company with significant expertise and a strong track Financial risks – current operating or ongoing financial needs, are sufficient funds in place, including loan facilities, cash flow from record of designing and commissioning mines and processing plants. cash and to develop new projects and fund growth. operating activities and cash on hand, to meet short-term business requirements. Long-term credit lines are used to finance new projects Our techniques for construction risk management are constantly liquidity risk Inadequate cash management in terms of cash and organic growth. improved including the employment of world-class consultants with flow forecast, available resources and future recognised international experience. requirements. 6 The Company operates in remote locations that To improve procurement management, in 2013 the Group restructured 12.2 Currency risk arises from the Company’s Natural hedging is used to reduce the risk exposure: revenue require complex and significant transportation of the procurement function by creating regional branches. Logistics and Financial risks – receipts from metal sales and foreign is matched with US Dollar-denominated debt. ore and gold/silver concentrates, most of which is supply chain risk To mitigate the logistics risk the Group invests considerable resources currency risk currency-denominated debt, as well as the conducted by third-party contractors. Production Flexible budgeting is used to monitor the effect of exchange rate in the construction and maintenance of permanent and temporary foreign currency-denominated cost of imported targets may not be reached if any element of the fluctuations on the Group’s financial results. winter roads at exploration and production sites. The Group exercises capital goods and consumables. logistics chain is disrupted. effective control over the whole logistics chain, including selection and operation of contractors. 12.3 The Group is exposed to interest rate risk, Based on analysis of the current economic situation, the Group has Financial risks – as a significant part of the Group’s debt portfolio decided to accept the risk of floating interest rates rather than hedge Health, safety and environment risk includes There is labour and industrial safety control system in place that interest rate risk is US Dollar and Euro-denominated floating it or borrow at fixed rates. 7 rate borrowings. Health and regulatory compliance, environmental pollution includes risk assessment of individual workplaces/functions, protection However the Group does not rule out the possibility of fixing the safety risk and damage, and personal safety. of personnel with safety equipment etc. interest rate on its borrowings in the future, should assessment The Company has tightened responsibility for implementation of safety of the ongoing economic situation suggest this may be profitable. procedures by raising employees awareness of risk, and has developed additional safety measures in relation to any identified weaknesses. 12.4 A higher rate of inflation may increase future As part of the budgeting process, the Group estimates possible Financial risks – operational costs and have a negative impact on inflation levels and incorporates them into its cost planning. inflation rate risk the Company’s financial results if there is no related depreciation of the local currency against the US Dollar, or an increase in LBMA gold and silver fixings. 72/73
Residual risk level Residual risk level High Medium Low High Medium Low Annual Report 2013 Polymetal International plc Governance 74/75
Degree in Experimental Nuclear in Degree MBA from the University the from MBA Degree from the Law School Previous roles in Polymetal: Polymetal: in roles Previous Previous role in Polymetal: Director Previously worked in Polymetal 2004. 2009. 2009. ofCalifornia at Berkeley, HaasSchool of Business. Management, and Economics in Degree University. Technical State Kaliningrad Tsyplakov Valery Director, Managing Appointed Experience Polymetal Engineering Polymetal Resources, Mineral for Deputy Director General the in roles senior and Technology and Design Technological and Technology and Production Research Departments, 2000-2004. Department Head at the Soviet Union Research Institute this to prior and Automation Aeronautical of (Denmark). Institute Physics University’s Orhus at Research Fellow in the Plasma Physics Department of the Moscow Physics and the of Member Professional Institute. Engineering (London). Mining & Minerals Materials, of Institute Qualifications Physics, the Moscow Physics and Engineering and Physics Moscow the Physics, Institute. PhD in Physics and Mathematics. Pavel Danilin Strategic Development Deputy CEO, Appointed Experience Relations, Investor and Finance Corporate of Corporate of Head Finance. Corporate of Head Finance 2002 at CJSC and ICT, 2003. Deputy Head of Currency Department and Head of Financial Resources Department at the Petrocommerce, Bank of branch Kaliningrad 1998-2001. Qualifications Igor KapshukIgor Officer Legal Chief Appointed Experience as Head of the Legal Department since 2005 and Deputy Head since 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), Legal 2001-2003. advisor for Pharmasintez, Legal 1999-2001. advisor at the Irkutsk Tea-Packing Factory, 1997-1998. Legal adviser at an insurance company (Irkutsk), 1994-1997. Qualifications of Irkutsk State University. and acting Head of the Legal Department
Honours degree in Open-pit Open-pit in degree Honours Degree with Honours in in Honours with Degree Geological Surveying in Degree MBA from the University the from MBA Chief Engineer at Gold of Northern Director of the Production Production the of Director CFO of the Timashevsk Dairy Chief Geologist at the Khabarovsk 2009. 2009. 2005. 2010. Mining from the Mining Department of the St. Petersburg State Mining Institute. of Hartford. Degree in Applied Mathematics from from Mathematics Applied in Degree Hartford. of the Moscow Institute of Physics and Technology. Roman Shestakov Roman Shestakov Development Project Deputy CEO, Constructionand Appointed Experience Urals, and a pit 2007-2009, superintendent from 2006. Mine superintendent at the Okhotsk 2004-2005. Company, Exploration and Mining Technical and Production the in engineer Mining Department of JSC Polymetal Management in the preceding two years. Qualifications Senior management management Senior Vitaly Savchenko Officer Operating Chief Appointed Experience production, senior 2007-2009, Department, 2004. since positions mining and technical and Mining Priargunskoye engineer at Chief Recipient 1994-2003. Company, Chemical of a third-category Miner’s Glory Medal. Qualifications engineering, mining mineral underground Strategy completed Institute; Mining Kyrgyz course of the MBA programme at the UK’s and School Business University Open is currently undertaking the final stage. Cherkashin Sergey Officer Financial Chief Appointed Experience Trushin Sergey Resources Mineral Deputy CEO, Appointed Experience Chief 2008-2010. Company, Exploration Geologist at Albazino Resources 2006-2008 Albazino Resources at positions various and Dalnevostochnie with Geologist 1998. since Production the with Geologist 1997. Resources, the and ‘Dalgeology’ Geological Association the in expedition exploration Nizhne-Amursk years. six preceding Qualifications the from Exploration Engineering Mining and Institute. Polytechnic State Novocherkassk Plant. Sales Director of the Ulyanovsk Automotive Plant. Deputy CEO of Development at the Volgograd for Consultant Dairy Plant. KearneyAT in Moscow. Qualifications
BSc with Honours in Geology in Honours with BSc University the from MSc MBA from the University of the Chairman of the the of Chairman Chairman of the Audit Audit the of Chairman More than 30 years’ experience Board member of JSC Polymetal Board member of JSC Polymetal Director Ideas of Trade LLC. Non-executive Director of AngloGold of Director Non-executive Member of the Audit and 29 September 2011. 29 September 2011. 29 September 2011. Leonard Homeniuk Jonathan BestJonathan Skirrow Russell
07 08 09 > > > Chair, President and Chief Executive Officer of Polygon Gold Inc. Committees member Committee, Remuneration Committee. Nomination the of of Manitoba. Member of the Ontario Society Ontario the Manitoba. of Member of as Global Chairman of the Metals/Mining team, yearsand 12 in Gold Fields (South Ltd Africa) Australia, in Corporation Mining Western and and the USA. Chairman of Dampier Gold Ltd 2010-2013. Qualifications from Durham University and a PhD from the London. College, Imperial Mines, of School Royal Member of the Institute of Materials, Minerals status, Engineer Chartered with Mining & and Fellow of the Financial ServicesInstitute Australasia. of Committee Committee. Risk Director non-executive Independent Appointed Experience since President, June 2010. CEO and member of the Board of Directors of Centerra Gold, 2004-2008. Held executive positions with Centerra Gold, Kumtor Gold and Corporation. Cameco Qualifications Canadian the Engineers, Professional of Institute of Mining and Metallurgy and the Association Developers and Prospectors the at Honorary Professor Canada. of Kyrgyz Mining Institute. rolesOther Independent non-executive Director non-executive Independent Appointed Experience the of member Committee; Risk and Committee. Remuneration Director non-executive Independent Appointed Experience since September of 34 years’Total work 2008. industry and mining global the experience in investment banking, including ten years at Merrill Lynch in London as Head of Global Metals, subsequently and Research Steel & Mining in the mining industry. Board member of JSC Polymetal since December 2006; Chairman Industrials; Gulf of Committee Audit the of Interim CEO of Trans-Siberian Gold in 2006; CFO and Executive Director of AngloGold Ashanti. Qualifications Chartered Johannesburg. Witwatersrand, Associate (ACIMA). Accountant Management of the Chartered Institute of Secretaries Administrators. and rolesOther Audit its of member and plc Holdings Ashanti and Mining Sentula of Chairman Committee; nomination their of Member and Platinum Bauba committees; Chairman remuneration and Resources; Non-executive GoldStone of Committee Audit the of Chairman and Director Metair of Investments. Committees
Educated at Eton in the UK MBA from the London Business London the from MBA Member of the Audit and Risk, Member of JSC Polymetal’s Over 40 years’ experience in the Trustee of the Bawdsey Estates. Chief Financial Officer Financial Chief 29 September 2011. 29 September 2011. Konstantin Yanakov Konstantin Charles Balfour
03 09 06 > > > Non-executive Director Non-executive Director non-executive Independent Chairman Chief Executive Officer 03 06 > > investment banking industry in the USA, UK, France and Hong Kong working for Dillon Read, Family Fleming and Durlacher Paribas, Banque Partners. Executive of Nasdaq International, 1993–2004, and its Chairman in 2000-2004; Energy. Humber and Power Humber of Director Qualifications France. in Sorbonne the and rolesOther Committees Committees. Nomination and Remuneration Non-executive Director Non-executive Appointed Experience September since Directors of Board Committee Audit its of member 2008, Various positionsuntil 2011. at MDM Bank. Independent Senior Director non-executive Appointed Experience CFO of JSC Polymetal until 2004. Qualifications Russian the from Economics in School; PhD State University of Management; degree Government the from Economics Global in Academy. Finance Russia’s of rolesOther of ICT Group, Director of ICT-Capital, LLC Director of Greek organisation of Football Prognostics SA (OPAP S.A.). Member of the Supervisory Board of Rigensis Bank AS, Board member at Piraeus Bank.
Degrees in Economics and and Economics in Degrees BA in Economics Economics in BA Board member of JSC Polymetal JSC Polymetal’s Chief Chief Polymetal’s JSC Board member of Waterstones 29 September 2011. 29 September 2011. Marina Grönberg Vitaly Nesis
05 02 08 > > > 05 02 > > Managing Director of A&NN (Schweiz), of Director Managing committee management of member of A&NN Capital Management Fund; President of the Nadezhda charity fund. A&NN Capital Management Fund; Fund; A&NN Management Capital Marenco Swiss Helicopters, SPAR-Retail, SPAR-Retail, Helicopters, Swiss Marenco from Moscow State University. rolesOther Credit, MIG Hachette-Atticus, Holding, Finance, and in Law from Moscow State Law Academy and in Applied Mathematics in banks and private equity firms. Qualifications Experience positions Various 2008. September since Non-executive Director Non-executive Appointed Chief Executive Officer Appointed Experience Executive from 2003, Member of its Board since June 2004. CEO of Vostsibugol, 2002-2003. Strategic Development Director at the Ulyanovsk Automobile Plant in 2000. Head of the Investment Planning Department at SUAL-Holding, 2001-2002. McKinseyat SUAL-Holding, 2001-2002. in Moscow, 1999-2000. Merrill Lynch in New York, 1997-1999. York, New in Qualifications from Yale University. Yale from
BA from the University of Natal MBA from the Chairman of the the of Chairman Managing Partner for Central President of the South African Chairman of Business Leadership Leadership Business of Chairman Director of PPF Advisory (Russia), PPF of Director 29 September 2011. 29 September 2011. Jean-Pascal Duvieusart Duvieusart Jean-Pascal Bobby Godsell Bobby
01 07 04 > > > 01 04 > > becoming Managing Partner in Prague. Prague. in Partner Managing becoming of the Board of Optimum Coal Holdings, plc. Glencore by acquired Qualifications and MA from the University of Cape Town. rolesOther and Limited Platmin of Director Africa, South African South the of Member Capital, Solar co-Chairman and Commission Planning National Council. Labour Millennium African South the of Non-executive Director of the South African Corporation. Development Industrial Committees Committee. Nomination New and York Central Europe before industrial and insurers banks, to Advisor Europe. Central and Russia in companies Board member of Nomos Bank and Fesco. Qualifications degree Master’s Chicago; of University Memberand of the HC Supervisory B.V. Board of PPF since 2010. Non-executive Director Non-executive Appointed Director of African Barrick Gold and Chair Experience Europe and the CIS at McKinsey; joined McKinsey and in 1992 worked in Brussels, Catholic Engineering, Commercial in Belgium. Louvain, University of rolesOther Flowervale PPF Group Ltd N.V., PPF B.V., Chief Executive of AngloGold Ashanti, AngloGold Ashanti, of Executive Chief Chairman of the Board of Directors Appointed Experience Eskom, of Chairman Mines, of Chamber Governance Board Directors of Annual Report 2013 Polymetal International plc Governance 76/77
Homeniuk serves Homeniuk as of theof Group; budgets expenditure capital and operating annual approving and any material changes them; to overseeing operations, the Group’s ensuring: competent internalof control; and compliance with all statutory and obligations; regulatory reviewing the performance the of Group in the light its of business objectives, strategy, business plans and budgets and ensuring that any necessary corrective action is taken; approving any material extension activities the of Group’s newinto businesses or geographic areas and any decision defining the commercial strategy and long-term objectives and prudent management; sound planning; a strong system ceaseto operate to all or any material part the of Group’s business; and and objectives understanding of mutual ensuring a maintaining constructive dialogue with shareholders. at the the AGM, Board has appointed Spencer Stuart • • • • The Board believes that Mr Best continues display to all the of qualities independence of pursuant the criteria to set out inthe the Company soldCode. 100% Amikan In of 2012 Holdings (‘Veduga’) deposit gold Veduga the owns which Limited, in the Krasnoyarsk region the of Russian Federation, to Mr (‘Polygon’). Inc. Gold Polygon ExecutivePolygon’s Chairman and Polygon CEO. operates equitya 42.6% ownership in Polygon and onethe of four board seats and therefore has significant influence, but doesnot have controlThe over its activities. Board continues consider to offernot to himself for re-election at the upcoming AGM theof Company and retire as to a Director at the conclusion theof in AGM order pursue to other opportunities. Further Mr Balfour’s decisionto offer not to himself for re-election as an international search firmto assist with the search Director. non-executive independent replacement a for Board meetings the Board met nine times.In 2013, One the of meetings, held a conference of way by call between MessrsGodsell and Nesis, approved an administrative matter previously agreed the by whole Board. Further business was approved a committeeby the of Board on two occasions. Board the of Role The Board is responsible for: • • reappointment is subject to particularly rigorous review. particularly review. rigorous to subject is reappointment and management independent with company standalone a as assistance regulatory certain and provides technical Polymetal holds currently Polymetal basis. ongoing an on Polygon to Mr Homeniuk be an to independent non-executive Director. The Board concluded that the relationship between Polymetal and Polygon is not material, given the carrying value its of interest in Veduga, which million is US$15.6 and represents approximately assets total the of as Group’s 0.5% December at 31 2013. The Company considers that the Board and its Committees experience, skills, of balance appropriate the have independence and knowledge the of Company enable to them discharge to theirrespective duties and responsibilities effectively. All Directors have access the advice to and services theof Company Secretary, and are able take independent to professional advice, if necessary, at the Company’s expense. Charles Balfour has informed the Board his of intention
Statement of compliance with the Code Governance Corporate UK The Directors are committed maintaining to high standards company, listed UK premium a As governance. corporate of during the year ended December Polymetal 31 2013 International was required comply to with the UKCode Corporateof Governance (‘the UK Code’) published in and availableSeptember through 2012 the UK Financial Reporting where Council’s website the provisions or, the of appropriate provide to been with, complied not have Code UK compliance achieved Company the 2013, During explanations. with all provisions the of UK Code. As well as complying with the UK Code, the Company has Stock Moscow the of regulations applicable all with complied Exchange and Russian securities laws since admission its of shares secondary to trading on the Moscow Exchange in June 2013. Board the of structure and Role The Company’s Board comprises one executive the Director, non-executive Chairman and seven non-executive Directors. Excluding the Chairman, four members the of Board are independent non-executive Directors. Refer the schedule to below for the structure the of Board and its Committees, showing the status each of Director. determined those are Directors The independent non-executive the by Board be independent to in character and judgement and be free to from relationships or circumstances which may affect, or could appear affect, to the judgement. Director’s The role independent of Directors on the Board is: challenge to the strategy and scrutinisethe performance management of in meeting agreed goals and objectives; monitor to the reporting performance of the of Company; review to the integrity financial of information; and that the Company’s internal financial controls and systemof risk management are determining for responsible are They defensible. and robust appropriate level remuneration of for the CEO and have a primary role in appointing and, when necessary, removing him. Directors’ interests are disclosed in annual declarations and the Company Secretary is notified promptlyof any changes thoseto interests. Before each Board meeting, independent independence their reconfirm Directors non-executive and all Directors disclose whether they hold any interests in any matters be reviewed to at the Board meeting. The significant shareholdersof the Company are represented on the (who BoardMr is by a representative Yanakov of Powerboom Investments Limited); Ms Grönberg (who is a representative Vitalbond of Limited, A&NN and Capital Management Fund Limited) and Mr Duvieusart (who is a representative Group PPF of BV). Mr Nesis is the brother theof beneficialowner Powerboomof Investments Limited. Save for the potential conflicts inherent in these relationships, there are no potential conflictsof interest between the duties owed the by Directors or senior management the Company to and their private interests or other duties. Best, Jonathan Charles Balfour, determined has Board The Russell Skirrow and Leonard Homeniuk be independent to independence the met Godsell Bobby directors. non-executive criteria on appointment. Jonathan Best has been on the Board the of Company and on the since September 2011 Board JSC of Polymetal since December 2006, and his
Bobby GodsellBobby Chairman andThis sustainability. robust system ensures delivery Dear Shareholders governance good upholding to committed remain We throughout every strand our of organisation. Effective corporate stewardship is essential in good times, but in the current key the importance as its environment, difficult market timelyto and effective decision-making is vital. the PolymetalDuring Board 2013, has faced – and been equal – the challengesto it has achieving met, full compliance with the UK Code during the year and enabling build us to upon our track record strong of governance. made We advances in our executive remuneration, with our best practice scheme being fully endorsed shareholders. by have maintained We a sound system internal of control and risk management with regular internal audits, risk assessment and reporting, and have in place robust anti-corruption procedures including anti- corruption training all of employees. alsoWe made significant gaining sustainability reporting, and in governance progress report, a comprehensive producing certification and ISO compliant with the exacting standards the of Global Reporting Initiative (GRI). regardWe strong governance asa dynamic process, in which continuous improvement a full is formal paramount. In 2013, Board evaluation was conducted an by independent external enablingadvisor, review us to effectiveness the Board’s and identify areas for improvement. The Board is continuously focused on providing effective strategic leadership the Company to both in the best interests itsof stakeholders and in order ensure to full accountability theof Company’s managementThis process the Board. to is supported a robustby internal control system embedded in all areas, including most importantly operations, finance, risk appropriate and objectives strategic Company’s the on succession planning to approach rigorous A management. will ensure that leadership is aligned corporate to strategy, both at Board and senior management levels, help to bolster business. the success of long-term the by performance underpinned financial is resilient Our a conservative approach funding, to aimed at striking the right balance between equity and debt, and maintaining conservative liquidity and gearing. Polymetal was successful in further extending the maturity profileof its debt during the year while maintaining a safe gearing ratio and a low cost debt,of as well as securing substantial additional unused facilities. credit continueWe strengthen to and improve our business, both operationally and financially, but never lose sight of the Board’s responsibility ensuring of that the Company is run in the best interests all of its stakeholders through our commitment behaviour. responsible and ethical of levels highest the to Governance Corporate Governance Annual Report 2013 Polymetal International plc Governance 78/79
Godsell Committee: Committee has responsibility for making recommendations recommendations making for responsibility has Committee the balance of skills, knowledge, experience, independence experience, knowledge, skills, balance of the and diversity the of Board, and in the light this of evaluation preparesa description the of role and capabilities required leads the process for Board appointmentsand makes recommendations the Board; to regularly reviews the Board structure, size and composition independence, experience and(including knowledge, skills, diversity) and makes recommendations the Board to about necessary; considers Committee the that changes any the to recommendations makes and plans considers the continued ability the of Group compete to effectively in the marketplace; before any appointment is made the by Board, evaluates for a particular appointment and the expected time and commitment; reviews the results performance the of Board’s evaluation process that relates the composition to the of Board and spending enough are Directors non-executive whether Board for orderly succession the Board to and senior to balance appropriate an maintain to as so management, skillsof and experience within the Company and on the Board and ensure to progressive refreshing the of Board, taking account into the challenges and opportunities facing Company; the keeps under review the leadership needs the of Group, both executive and non-executive, with a view ensuring to time discharge to their duties. Evaluation and re-election policies and Evaluation Committee Nomination Mr by chaired is Committee Nomination The the successto the of Group. Following their performance evaluations, the Chairman believes that each Director standing for re-election continues be effective to and demonstrate to commitment his to or her role. A performance evaluation and its other members are Mr Homeniuk and Mr Balfour. The the Boardto on the composition the of Board and its and additional of appointments including Committees, The Directors. replacement • • • • • and the Company has notemployed external search Theconsultants. Company has appointed Spencer Stuart as an international search firmto search for a further independent non-executive Director replace to Mr Balfour, Committee Nomination the member of replacement a and will be appointed following the AGM. In accordance with the UK Code, all Directors are subject annualto re-election. Full terms and conditions appointment of non-executive of Directors are available for inspection at the Company’s registered office. pages on out set are details biographical Directors’ The ●and the Board 75 to considers74 that each the of Directors standing for re-election will be an effective contributor theof Chairman (including externally facilitated evaluation) was conducted and the Board the by Board believes in 2013, that the Chairman continues be effective to and demonstrate to role. his to commitment • There were no changes the Board to structure in 2013
all all all NA NA NA NA NA NA
(two)
meetings Committee Nomination
3 all all all NA NA NA NA NA NA (two) meetings Committee Remuneration 2 . all all all NA NA NA NA NA NA (six) Risk meetings Audit and and Audit Committee 1 8 8 8 8 8 8 8 all all (nine) Board meetings
on two further occasions. One of the meetings, held by way of a conference call betweenMessrs Godsell and Nesis, approved an administrative matter previously agreed Board. whole by the Further business conducted by the Board was approved by a committee of the Board written by approved was Committee Risk and Audit the by conducted business Further occasions. further five on resolutions written by approved was Committee Remuneration the by conducted business Further further occasions. two on resolutions Jean-Pascal Jean-Pascal Duvieusart Marina Grönberg Konstantin Konstantin Yanakov Charles Balfour Leonard Leonard Homeniuk Russell Russell Skirrow Jonathan Jonathan Best Vitaly Vitaly Nesis and lodge their proxy in votes good time, all meeting materials are made available more than working 20 days prior the to SeparateAGM. resolutions are proposed on each substantially separate subject and all resolutions are put a poll. to The Company also offers shareholders the option abstain. to Shareholders who are not ableattend to the are AGM encouraged submit to proxy either votes electronically or in received we AGM paper votes format. the At Company’s 2013 representing approximately our 82% of issued share capital. The results the of proxy are read vote at the meeting with the final results announced via the London Stock Exchange and website. the on available opportunity valuable a for provides AGM our addition, In shareholders meet to with and put questions the Directors to was AGM attendedThe all by Directors, 2013 in person. including the Chairmen the of Audit and Risk, Remuneration conference and webcast Live Committees. Nomination and call facilities are available for shareholders unable be present to in person and a recording the of webcast AGM is made website. Company’s the on available majority the with communication primaryThe of means ourof shareholders, whohave not requested paper copies website corporate our through is documentation, our of www.polymetalinternational.com Board and Committee meeting attendance Bobby Godsell 1 2 3 Further to Mr Balfour’s decision not to offer himself himself offer to not decision Balfour’s Mr to Further for re-election the Board as a Director, willappoint a new SID following the AGM. Constructive use of the Annual General Meeting The Board uses the Annual General Meeting (AGM) communicateto with investors and encourage to their ensure the Company’s shareholdersparticipation.To have time consider to our Annual Report and Notice AGM of
chairman Member Member
member/
Chairman Nomination Committee
chairman Member Member member/ Chairman Committee Remuneration chairman Member Member member/ Chairman Committee Audit & Risk ✓ ✓ ✓ ✓ Independent Balfour, and major institutional shareholders institutional major and Balfour, ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ensuring effective communication with shareholders and ensuring the development needs the of executive Directors and senior management are identified and met and ensuring succession planning;effective and disclosed is information accurate and timely appropriate, that the market,to with issues escalated promptly theto executive management and the Board. making recommendations on remuneration policies, policies, remuneration on recommendations making executive remuneration and terms employment of employees; senior for strategic direction the of Group; regularly reviewing the operational performance operational and the reviewing regularly identifying and executing strategic opportunities; development and proposal of Group strategy, including including strategy, Group of proposal and development objectives commercial and plans annual communicating shareholders, its to responsibilities Group’s the upholding stakeholders; other and employees customers, to the Board;to Non-executive • Senior Independent Director (‘SID’) Charles Balfour acts Mr Balfour SID. as the Board’s is available shareholdersto and as an intermediary for the other Directors if necessary. He attends meetings with major shareholders listen theirto to views in order help to develop a balanced major issues concerns and of the understanding of Directors, independent between Meetings shareholders. Mr including as parttook place the of Company’s investor in 2013 day. opinions shareholders’ on updated regularly is Board The management. Company’s the with meetings following Separate meetings are held between the non-executive Directors without the Chairman or the CEO being present and between non-executive directors without the Chairman, led appraise to the by SID, his performance annually and on such other occasions as appropriate; and between the independent non-executive Directors without the other non-executive DirectorsThis being includes present. both formal and informal meetings between Directors. • • • • reporting on items the of agenda and participating in discussion. All members executive of management report directly the CEO. to responsibilities His include: • • ✓
Executive
Appointed 29 September 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 29 September 2011 September 29 29 September 2011 September 29 6 4 7 5 3 2 1 effective running the of Board; authority of delegation appropriate is there ensuring from the Board executive to management; promoting a culture openness of and debate facilitating by the effective contribution non-executive of Directorsin particular and ensuring constructive relations between executive and non-executive Directors; encouraging active engagement all by members the of Board and ensuring that the directors receive accurate, timely and clear information; and ensuring that the views the of shareholders are communicated the Board to as a whole. Senior Independent Director. A replacement Senior Independent Director Mr will Yanakov was be appointed appointed non-executive following the AGM. Director of JSC Polymetal on September 25 2008. Ms Grönberg was appointed non-executive Director of JSC Polymetal on September 25 2008. Mr Nesis was appointed CEO of JSC Polymetal, the previous parent and reporting entity Mr Best of the was Group, appointed on 30 June non-executive 2004. Director of JSC Polymetal on December 28 2006. Dr Skirrow was appointed non-executive Director of JSC Polymetal on September 25 2008. Mr Homeniuk was appointed non-executive Director of JSC Polymetal on 29 June 2010. Russell Skirrow Balfour Charles Yanakov Konstantin Jonathan Best Jonathan Leonard Homeniuk Leonard Grönberg Marina Duvieusart Jean-Pascal 5 6 7 1 2 3 4 Board member Board Godsell Bobby Nesis Vitaly for setting agenda. the Board’s His responsibilities include: • • • • theof Group and for developing business the Group’s objectives,strategy, budget and forecasts and, once approved theby Board, overseeing their successful implementation. The CEO reports the Chairman to and the Board directly. The Board interacts with the executive management on a regular basis. Directors invite senior executives attend to relevant parts the of Board and committee meetings for The CEO is responsible for the day-to-day management management day-to-day the for responsible is CEO The the leadership and overall effectiveness the of Board and • Mr Godsell is able commit to sufficient timeto his role as non-executive Chairman Polymetal of International and the Board believes that other commitments do not adversely affect his contribution the Mr Company. to Godsell’s other significant commitments are membership the of South African National the in directorship non-executive a and Commission, Planning also is He Corporation. Development African Industrial South Chairman Business of Leadership South Africa and a Director Capital. Solar and Limited Platmin of Roles of the Chairman, Chief Executive Officer Chairman,the Executive Chief of Roles The Chairman reports the Board to and is responsible for at least annually. Director Independent Senior and The Board has approved the division responsibilities of between the Chairmanand the Chief Executive Officer (CEO) and the role the of Senior Independent Director (SID). The schedule matters of reservedthe Board to is reviewed Board composition Governance Corporate Governance continued Annual Report 2013 Polymetal International plc Governance 80/81
reviewed and recommended for approval Polymetal’s results for the six months 30 June to 2013; plan; work Committee the approved and discussed anti-bribery Company’s supervised the with compliance and corruption policy; corruption and reviewed the treasury policy and recommended its approval theby Board; monitored and plan audit internal Group’s the reviewed the effectiveness internal of audit; reviewed external the Group’s audit plan and recommended for approval the interim and year end auditfees; reviewed the actual compared audit fee in 2013 the authorisedto amount; approved the terms engagement, of including the engagement letter issued at the start each of audit and the scope the of audit; reviewed the independence and effectiveness the of external auditors; performed the work by non-audit reviewed auditor; LLP Deloitte of reappointment recommended the auditor; external as reviewed the critical risks and exposures the of Group, including significant judgements, impairments and tax risks; reviewed the capability finance the of team; Group’s and the of assessment performed externally-facilitated an effectiveness. Committee’s • • • • • • • • • • • • • In line with the Company’s overall approach governance, to have we instilled a strong culture discipline of throughout our business, and are confident thatwe a stronghave system Committee the processes enable which flexible of operateto effectively. as a CommitteeWe remain fully focused on being an effective bodykey scrutinising the reporting, internal control and risk management processes in order ensure to transparency and objectivity the of Company’s financial statements. Jonathan Best Jonathan Committee Risk and Chairman, Audit
risk information included in the Annual Report 2012; reviewed and recommended for approval financial and financial approval recommended for and reviewed Dear Shareholders became more environment regulatory the 2013 In this, reflected approach Committee’s the and – demanding with its ongoing focus on active management risks of and robust internal control. During a new effectiveness the year, framework for the assessment the of Committee’s work implemented. was rigorous more a prompted movements market Negative approach financial towards key statements risks, namely impairments and underlying assumptions. also We strengthened our financial/internal controlsteam, with the aim enhancing of the quality the of reporting function the Committeeto and the Board. responsibility ongoing an has Committee the addition, In for evaluation the review, and stewardship the of Company’s risks strategic the minimise processes management to risk the businessto identifiedby the Board,of which market risk is currently our priority. top The Audit and Risk Committee is a fully independent body, consisting only independent of non-executive Directors with relevant skills and experience in financial reporting and risk management. six meetings the of In Audit 2013 and Risk Committee were was Committee the by further conducted and business held approved written by resolutions on five additional occasions. The Audit and Risk Committee dealt with the matters: following • Audit and Risk Committee report
top strategic strategic top
rst externally-facilitated externally-facilitated rst . Full terms of reference of the Nomination Committee Nomination the of reference of terms Full are available at the Company’s website: www.polymetalinternational.com The Board considers that the composition the of Board and requirements the with complies Committee Nomination the theof UK Code. evaluation Board Polymetal is committed best to practice in corporate fi commissioned its and governance This was performed Board Lintstock review by in 2013. Ltd., an independent advisor with no other connection the to The Board carried Company. out a performance evaluation on the basis which of a report was produced for the Board’s In-depthreview. discussion the of results took place at the meetings the of Committees the of Board and subsequently on strategy; understanding the views investors of and The shareholders; succession and planning. issues facing the Company were identified as: replacing reserves; growing M&A;and commodity prices; cost control; the investor base; and maintaining the dividend. The Board will continue perform to an annual self-evaluation assess to its effectiveness and identify requirements. development of itself,of its Committees, the Chairman and each individual In accordanceDirector. with the UK Code, it is the Board’s policy that the evaluation process will be externally facilitated every three years. The evaluation process consisted the of Board reviewing its own performance, the performance each of Committee the of Board, individual Directors and the Chairman. All Directors and questionnaires detailed Secretary completed Company the at a Board meeting. Each individual director including the Chairman and did the not CEO, fill in questionnaires on their own performance and were not present at the subsequent included: review of Areas performance. their of discussion Board composition, Board expertise, Board dynamics,time strategic Committees, Board support, Board management, succession control, internal and management risk oversight, priorities and management resource human and planning change. for The majority areas of were rated very highly with all areas receiving priorities at least adequateTop for feedback. the Board over the coming year were identified as:focusing
the right approach to way diversity introduce is not to fixed quotas, to butseek the right qualities in every Diversity first. comes competence where appointment, becomes an additional advantage such of an approach and is in line with the Company’s objective promoting of women held interviews with senior managers discuss to matters that needed be addressed to ensure to continued effective building of Methods performance leadership continuity. through whether including discussed were pipeline leadership the up should positions management senior for candidates stronger be those with fluent English and someexperience and/or education outside Russia along with experience working of Upon appointment, Directors receive a full induction, During the year the Nomination Committee reviewed existing succession planning arrangements in the Company and including:information about the Company; an outline the of role a Director of and a summary his of or her responsibilities best and regulation legislation, under obligations ongoing and practice; a copy the of Memorandum on Inside Information, Insider Lists and Code Practice of on Dealing in Securities. Directors also receive the Company’s guidelines on matters reserved the Board, to terms reference of the of Board Committees and other governing documents the of Company. Directors and chairmen the of Board Committees regularly governance corporate changes to on updates receive and regulatory requirements and other changes affecting The Board welcomes diversity at all levels; it believes that at all levels the of Group. Despite challenges presented the by industry the Company operates it in, takes steps promote to held traditionally positions in women hiring including women, the proportionmen. by In 2013, women of working in the Group Board was of 22%. members; Women represent 11% qualified of 44% and positions; management senior of 22% The auditemployees. the by HR under taken in 2013 Department revealed no instances discrimination of towards employees the of All Company. candidates and employees have equal opportunities regardless age, race, gender, of religion residence, wealth, origin, language, nationality, and other beliefs, social membership or other personal circumstances. in RussiaThe Nomination and the CIS. Committee approach rigorous deeper more a and acknowledges that successionto planning is vital for the Company’s continuing success so that leadership is fully aligned corporate to strategy, both at Board and senior management levels, and will continue addressing this matter in the future. There were two meetings the of Nomination Committee the Company. The Board is kept informedthe Company. relevant of developments in the Company monthly of way by management operating on information comprehensive including reports, and financial performance and the progressof capital projects. A field tripto the Amursk plantPOX and Albazino for non-executive Directors took place in August 2013. organised Committee Nomination the 2013 In 2013. in a full externally facilitated Board evaluation, full details whichof are set out further on this page. itsAt meetings the Committee continued discussing diversity and helpingof ways promote women to in the Company. Governance Corporate Governance continued Annual Report 2013 Polymetal International plc Governance 82/83
internal audit function also aims aims also function audit internal an objective evaluation the of Company’s and the Group’s The framework. governance raiseto levels understanding of and awareness risk of and Group. the throughout control the Directors, through the Audit and Risk Committee, with with Committee, Risk and Audit the through Directors, the The Chairman of the Audit Committee makes himself available available himself makes Committee Audit the Chairman of The majorto institutional shareholders annually discuss to the Company’s annual reporting shareholders to as part the of He is alsoCompany’s investor available day. for one-on-one meetings with shareholders key on their request. The re-appointment Deloitte of external LLP as the Group’s auditor is reviewed annually the by Audit and Risk Committee. CIS Deloitte with 2011, in auditor appointed was LLP Deloitte having been auditor JSC of Polymetal since the last tendering The Group has a policy tendering of process the in 2007. external audit at leastThe every Committee’s ten years. performance and auditor’s external the assessment of independence underpins its recommendation the Board to May 2014. on 21 The Board considers that the Audit and Risk Committee complies with the requirements the of UK Code. management risk and control Internal The Company aims ensure to that all its activities are adequately controlled, mitigate to risk and support the achievement its of objectives, while avoiding the creation The excessiveof system internal of bureaucracy. controls is designed manage to rather than completely eliminate risk, achieveto the Company’s business objectives whilst bringing residual risk an acceptable to level, and can only provide material against assurance absolute not and reasonable loss. or misstatement In conducting its annual review the of effectiveness risk of operating (including financial, control managementinternal and and compliance controls), the Board considers the key reporting and processes, monitoring ongoing the from findings management assertions and independent assurance reports. The Board also takes account material of changes and trends in the risk profile and considers whether the control system, achieving in supports Board the adequately reporting, including its risk management objectives. During the course the of year the Board considered the business its within changes to responsiveness Group’s The Boardenvironment. is satisfied that there is an ongoing process, which has been operational during and the year, theup approval date of to the of Annual Report, for identifying, evaluating and managing the significant risks faced theby Group. audit Internal providing by aim supports this function audit internal The to propose to shareholders the re-appointment of Deloitte LLP Deloitte of re-appointment shareholders the to propose to as auditor until the Resolutions conclusion the of in AGM 2015. authoriseto the Board re-appoint to and determine the AGM the at proposed be will remuneration auditor’s
The Committee evaluated evaluated Committee The The Committee examined the price the examined Committee The assessment tool adopted is comprehensive and includes includes and comprehensive is adopted tool assessment The Committee assessed the existing and potential tax exposures the of Group in Russia and Kazakhstan and the developments the of related court cases since the last reporting and date, evaluated whether the amount provisionsof recognised in the financial statements continued be the to best estimate for probable exposures. Other the of impact items: the examined Committee the implementation IFRIC of (‘Stripping 20 costs’), a new regulation covering accounting for stripping costs, and period financial prior and current on impact related the The Committeestatements. also evaluated the accounting policies adopted management, by internal controls and the risk misstatement. of Testing theTesting recoverability of goodwill and PPE. of indicators potential the examined Committee The impairment for each the of cash-generating units and fair the assessing for used models financial life-of-mine the value less costs sell to the of individual CGUs tested for challenged and examined Committee The impairment. rate exchange and rate discount commodity price, the assumptions used management by in its impairment tests. theTesting existence and recoverability of metal inventories. costs unit as well as management by used assumptions and other internal assumptions used in determining the net inventories metal within goods unfinished of value realisable (ore and concentrate stockpiles). and recoverability exploration the of Testing assets. development management’s approach determine to whether the existing generate to likely are asset development and exploration results exploration prior reviewing benefits, economic future plans. development future and tax of exposures. disclosure and Provisioning • are also reviewed the by Committee. The effectiveness management of in the external audit process is assessed principally in relation the timely to identification and resolution areas of accounting of judgement,the quality and timeliness papers of analysing those judgements, management’s approach the value to independent of audit, the booking audit of adjustments arising (if any)and the timely auditor the by review for documents draft public of provision Committee. Audit the and Every three years, the Audit Committee requests that a partner independent the of auditengagement team discusses the Committee Audit the with process audit external the quality of chairman and the CFO using this evaluation framework. During the Audit thisCommittee’s year, focus was on: • • • • An auditor assessment tool is completedeach yeareach by member the of Audit Committee and Feedback the by CFO. is also sought from other the CEO, members the of finance team, divisional management and the head internal of audit. The detailed questions which are completed a formal of way by questionnaire every three years, with the areas key being performedThe feedback every from this process year. is considered the by Audit Committee and is provided both the auditorsto and management. to Action plans arising
.
the independence and objectivity the of audit firm and the quality the of formal audit report shareholders. to how the audit contributes insights and adds value; communications by the auditor with the Audit Audit the with auditor the by communications work supports the auditor the how and Committee, Committee; Audit the of the role management of in an effective audit process; execution the of audit; planning and scope the of audit and identification areasof audit of risk; the audit team; audit the the audit partners, with particular focus on the lead audit partner; engagement • • • • • • • The Audit and Risk Committee monitors the Company’s Company’s the monitors Committee Risk and Audit The relationship with its external auditor relating the provision to objectivity and auditor that services ensure non-audit to of independenceThis are safeguarded. is achieved disclosure by prohibition the and statements) financial consolidated the to against selected services being provided the by external auditor. services the non-audit by of provision the governing policy The permitted defines Committee the by approved auditor external services. non-audit and audit of provision the for place in are thresholds Pre-approval being: pre-approval auditor, external services the non-audit by the by CFO (if below US$5,000); the by Chairman the of Audit and Risk Committee (if between US$5,000 and US$20,000); or the by Audit and Risk Committee (if above US$20,000). Above a certain threshold, if it is determined that the external auditor has no obvious competitive advantage in the provider services, the then non-audit performance proposed of thoseof services must be chosen a competitive of way by Certaintender. types non-audit of work may be undertaken the by auditor without prior referral the Audit to and Risk Committee a cumulative up to annual value US$100,000. of Any further non-audit work is subject approval to the by Audit and Risk Committee in further tranches US$100,000. of In the event that the cumulative value non-audit of fees exceeds US$500,000 in separate any given approval year, the of there why explaining required is Committee Risk and Audit is no threat independence. to A copy the of policy is available www.polymetalinternational.com website: Company’s the on the externalto objectivity auditor’s or independence. Review of the effectiveness of the external audit quality audit and process framework formal a adopted has Committee Audit The in its review the of effectiveness the of external audit process areas: following the quality includes which audit and • of theof extent and nature non-audit of services (see 14 Note information considered has Committee Risk and Audit The pertaining the balance to between fees for audit and non-audit andwork concluded for the Group in 2013 that the nature and threat a present services not do non-audit provided of extent
. Committee gives due consideration to applicable laws laws applicable to consideration due gives Committee to be putto shareholders to consider to at the in AGM, relation removal or resignation reappointment, appointment, the to of significantof estimates and judgements, taking accountinto the views the of external auditor; and the clarity and consolidated the in disclosure of completeness financial statements; considering and making recommendations the Board, to external theof Group’s auditor; overseeing relationship the Group’s with its external auditor and reviewing the effectiveness the of external audit process, regulatory and professional UK relevant account into taking requirements; the Committee meets with the external auditors at least without once a year, management being present, discuss to their remit and any issues arising audit; the from reviewing the independence and objectivity the of external any of provision the of appropriateness the and auditor into taking auditor, external services the non-audit by guidance; ethical relevant account reviewing the effectiveness system the of Group’s internalof controls and risk management systems; monitoring and reviewing the effectiveness the of Group’s internal audit function inthe context overall the of Group’s system; management risk reviewing policies the Group’s 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 transactions. significant approving monitoring the integrity of the Group’s consolidated financial financial consolidated Group’s the of integrity the monitoring statements and reviewing its annual and interim financial statements, including, but not limited to: the consistency of, and any changes accounting to, and treasury policies across the Company and the Group; the methods usedaccount to reasonableness the transactions; unusual or significant for and regulations, the provisions the of UK Code and the requirements the of Listing Rules. are available at the Company’s website: www.polymetalinternational.com Ultimate responsibility for reviewing and approving the interim and annual financial statements remains with the Board. The (refer for details page to 75 Mr of experience). Best’s In addition, the other members the of Committee have a wide range financialof andother relevantexperience. As a result Mrof Balfour’s decision offer not to himself for re-election • • • • • • • Full terms reference of the of Audit and Risk Committee The responsibilities of the Audit and Risk Committee comprise: Committee Risk and Audit the of responsibilities The • Audit and Risk Committee Risk and Audit The Audit and Risk Committee is chaired Mr by Best and its other members are Mr Skirrow and both Mr Balfour, consider Directors The Directors. non-executive independent that Mr Best has recent and relevant financialexperience a replacementas a Director, member the of Audit and Risk Committee will be appointed following the AGM. Governance Audit and Risk Committee report continued Annual Report 2013 Polymetal International plc Governance 84/85
Controlsover IT systems used in financial accounting reportingand The Group uses Enterprise a 1C: 8 ERP system for automation everydayof enterpriseThese activities. include various functions, management and economic the of tasks business business accounting, management as accounting, such (‘SRM’) management relationship supplier management, HR (‘MRP’). planning Polymetal requirements material and also uses the ERP system for budgeting,accounting, management, chain supply payroll, and record-keeping HR operational reportingThe and procurement. Group operates an IT management framework based on COBIT (Control Technology), Related and Information for Objectives requirements high-level of set complete a provides which be consideredto for effective control each of IT process. UK Bribery Act 2010 The Company and its Directors are committed ensuring to adherence the highest to legal and ethical standards. This must be reflected in every aspectof theof the way Group operates. Bribery isa criminal offence in the countries in which the Group operates. Corrupt acts expose the Group and its employees the risk to prosecution, of fines Company’s the endangering as well as imprisonment, and The Groupreputation. has a Code Conduct of in place, which refers anti-bribery to The and Policy corruption policy. extends across business all the Group’s dealings in all countries and territories in which the Group operates and applies allto employees the of Group, as well as relevant business partners and other relevant individuals and entities. The Board attaches the utmost importance this to policy and applies tolerance’ a ‘zero approach acts bribery to of and corruption employees any by the of Group’s or business by partnersThe Policy working prohibits behalf. on the Group’s the payment, offer or authorisation bribes, of the receipt or acceptance a bribe, of or the payment, offer or promise pay to any facilitating payments. Any breach this of policy is regarded as a serious matter the by Company and is likely result to disciplinaryin action. As part its of implementation internal of procedures comply to with the UK Bribery the Act, Group has in place a formalised for describes place which processes in policy whistle-blowing staff communicate, to in confidence, concerns about possible that ensures and activities illegal or unethical improprieties, arrangements are in place for independent investigation of such matters. The Company affirms that it has not denied any personnel access the Audit to and Risk Committee and that it has adverse from whistle-blowers to protection provided action. personnel Copies website. the on available is Conduct of Code The theof anti-bribery and corruption policy and the whistle- the from request on available are policy blowing Company’s offices.
This has involved considering the matters reported it andto developing plans and programmes that it considers are reasonable in the circumstances. Based on the results results the on Based circumstances. the in reasonable are theof review risk of management and internal control activities, undertaken the by Board and the Audit and Risk Committee the Board considers that the risk management and internal control systems are in accordance with the Revised Guidance for Directors on the UK Code. reporting systems Financial The quality financial of accounting and reporting is ensured through a set control of procedures in the following areas: new of preliminary review methodology, accounting transactions, documentation, accounting techniques procedures. financial and closing Accounting policies are developed centrally for each the of subsidiariesGroup’s and are adapted for the peculiarities responsible Employees policies. Group-wide and entity each of for accounting and reporting functions have powers review to upcoming transactions and propose adjustments, where necessary, ensure to proper accounting and tax treatments. The use a centralised of ERP system in each the of Group accounting and business the of unification ensures companies Theprocesses. Group implements a multi-level set controls of over financial and accounting data recorded in the system. These controls involve the accounting department each of subsidiary controls the and of management senior subsidiary, at the head office level. In addition, the accounting and and internal by audited regularly are reporting data auditors. external Procedures for approval of capital and expenditures current The Company prepares annual operating and capital expenditure budgets based on its current and strategic goals and objectives. In addition periodic to control actual of financial ongoing of procedure a performance budgeted, versus control and authorisation expenses of The current is in place. system pre-approval of significant of transactions, along with accounting procedures in the ERP system, achieves a level controlof over the amount and appropriateness expenses. of operations Treasury The Group operates a centralised treasury function, which is responsible for payments on behalf all of subsidiaries the of Group. Use such of a centralised system achieves the best level controlof over the payments function without compromising the speed and reliability payments. of All transactions with banks on accounts maintenance, deposits and borrowings and foreign currency transactions are also performed at head office level in compliance with the treasury policy approved theby Board.
of authority; of the of levels all at implemented activities control specific Group; and a periodic review the of effectiveness internal of controls. an appropriate tone set from the (Board top level), environment; control appropriate the building at aimed a proper risk identification and management system (for more detail please refer page to 70-71); a strict division responsibilities of and adequate delegation or weaknesses system internal of in the Group’s controls. The Board confirms that the actions it considers necessary have been or are being taken remedy to any failings In addition controls to operating in specific areas (production, framework control the procurement), construction, exploration, financial for procedures common of set a includes also accounting, reporting and budgeting – see details below. Within this framework, authority is delegated within clearly within delegated is authority framework, this Within prescribed limits and decisions are escalated where either project size or risk profile require a higher levelof authority. • • The governance framework reflects the specific structure and management the of Group, where authority and control are delegated the by Board different to levels, from the the CEO to managersoperating the of Group’s entities and then downward appropriate. managers as project business and to Internal control framework and activities and framework control Internal policies internal and Group the of structure management The and procedures are aimed at maintaining a robust control framework within the Group which will result in the achievement strategic of objectives within the set risk by internal by audit. Where possible, the issues are resolved reporting period. one within levels. tolerance includes: framework This • • • Management providestimely a response issues to raised to personallyto confirmtesting the of internal controls and business their within policies Group with compliance or function and the steps taken address to actual or potential issues that are identified. The internal audit annual function’s work plan is designed to focus on matters arising from the operational risk matrix and The head internal of audit reports the CEO to and, through the Audit and Risk Committee, the Board to Directors. of Where relevant, the internal audit function will additionally report its findingsto members of the executive Company’s management. The internal audit function uses an annual self-certification Group the managers throughout requires which process, is approved the by Audit and Risk Committee in advance. Governance Audit and Risk Committee report continued Annual Report 2013 Polymetal International plc Governance 86/87
million (2012: profit US$428 million). profit Underlying (2012: million so far as the Director is there aware, is no relevant audit information which of auditors the are Group’s unaware; and the Director has taken all steps that he or she ought have to taken as a Director in order make himself to orherself aware anyof relevant audit information and establish to that the auditor is aware thatGroup’s of information. Dividends lossThe for the Group’s year ended December 31 2013 attributable equity to holders the of Company was net earnings (adjusted for theafter-tax amount of millionimpairment charges) were US$117 in 2013 US$431(2012: million). the Company In August 2013 US$198 declared an interimdividend US$0.01 of per share which was paid in September 2013. The Directors havewas proposed paid in September 2013. the payment a final of dividendof US$0.08 per share US$0.31(2012: per share). In addition, a special dividend of US$0.50of per sharewas declared the by Company in and December paid in January 2012 2013. Meeting General Annual The shareholders of AGM the of Company will take place am (BST) in Le Hocq Suite, Radisson at 11.00 May 2014 on 21 Blu Waterfront Jersey St Helier, Rue Hotel, de JE2 l’etau, 3WF, shareholders for available be will webcast A Channel Islands. who will not be able attend to the meeting in person. Auditors Each the of persons who is a Director at the approval of date Annual Reportthat: this confirms of • • Deloitte LLP has expressed its willingness continue to in office as auditor and a resolution reappoint to them will be proposed at the forthcomingThe Audit and Risk AGM. Committee reviews both the level the of audit fee and the level and nature non-auditof fees as part its of review the of adequacy and objectivity the of audit process. Having taken all matters considered the by Board and brought the attentionto the of Board during the year account, into arewe satisfied that the Annual Report, taken as a whole, balancedis fair, and understandable and provides the information necessary for shareholders assess to the Company’s performance, business model and strategy. On behalf the of Board Bobby GodsellBobby Chairman 30 March 2014
an amount the of average equal the 105% of middle to market quotations an of 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 be to purchased; and an amount equal the higher to the of price the of last independent trade an of ordinary share and the highest current independentbid for an ordinary share as derived from the London Stock Exchange System; Trading
the maximum number ordinary of shares be to ordinary shares; 38,947,286 is purchased expenses) which (excluding price minimum the may be paid for each ordinary share is 1 penny; expenses) may maximum which the (excluding price be paid for each ordinary share is the higher of: a. b. pursuant Article to 58A the of Companies (Jersey) Law 1991, the Company may hold as treasury shares any ordinary shares purchased pursuant the authority to conferred in this Resolution. The Articles the of Company can be altered a special by resolution the of A resolution Company. is a special resolution when it is passed three-quarters by the of members who (being entitled do so) to in person, vote or proxy, by at a general meetingthe of Company. Pursuant the Company’s Articles, to the Directors have the power allot to Equity Securities (as defined thein Articles). the the of At the AGM Company power allot to held in 2013, number aggregate an to up renewed was Securities Equity ordinary shares, provided 129,824,288 of that the Directors’ power in respect such of an amount may only be used in connection with a pre-emptive issue (as defined in the Articles). The Directors are further empowered pursuant Article to 12.4 theof Company’s Articles allot to Equity Securities for cash as if Article the of Articles 13 (Pre-emptive rights) did not apply and for the purposes paragraph of (b) theof Article of 12.4 Articles, the Non Pre-emptive Shares (as defined in the Articles) are an aggregate number 19,473,643 up of to ordinary the Company shares. used In the 2013, above newordinary sharespowers allot to relating 5,491,661 acquisition. Maminskoye the to Pursuant Article to the of Companies 57 (Jersey) Law 1991, the Company is authorised make market to purchases ordinaryof shares the provided of Company, that: • • • • or revoked unless previously shall, above authorities The next Company’s the of conclusion the at expire varied, if earlier, at the close (or, AGM business of on the date which months afteris 15 the the date of resolution, which granted Decemberthem, being 12 2014). Approval share of issues, consideration for which does not exceed million, US$15 is delegated a committee to the of CEO, the Chairman the of Audit and Risk Committee and the SID. If the Chairman the of Audit and Risk Committee and/or the SID are not available, then any independent non-executive Committee. the on alternates their as act may Director(s)
Directors’ interests Information on Directors’ interests in shares the of Company is set out in the Remuneration report on page 98. indemnities Directors’ the extent permittedTo the by Companies (Jersey) Law 1991, the Company has indemnified every Director andother officer theof Company (other than any person (whetheran officer or not) engaged the by Company as auditor) out the of assets theof Company against any liability incurred him by or her for negligence, default, breach breach duty, of trust of or otherwise in relation the affairs to the of Company. This provision does not affect any indemnity that a Director or officer otherwiseis entitledto. donations Political The Company may not make a political donation a political to party or other political organisation, an or independent to unless expenditure, political any incur or candidate, election ordinary an by authorised is expenditure or donation such resolution shareholders of passed before the donation is made or the expenditure incurred. No such donations were made the financial to in 32 Note statements. There are no specific restrictions on the of a size holding or on the transfer shares, of which are both regulated the by Articles the of Company and applicable legislation. The Directors are not aware any of agreements between holders the of Company’s shares that may result in restrictions on the transfer shares of or on voting rights. There are a number agreements of that take effect, alter or terminate upon a change control of the of Company, such as commercial contracts, bank loan agreements and employees’ share plans. None these of is considered be to the of business the on impact likely their of terms in significant Group as a whole. Furthermore, the Directors are not aware anyof agreements between the Company and its Directors office of loss for compensation for provide that employees or or employment that occurs because a takeover of bid. disclosed are Company the in shareholdings Substantial on page 162. Details employee of option schemes are set out in the Remuneration report on pages 90 101. to There were no acquisitions the of Company’s own shares the December Group 31 and At its subsidiaries 2013, in 2013. held no treasury shares (31 December no shares). 2012: in 2013 (2012: none). (2012: in 2013 structure Capital The structure the of Company’s share capital is detailed the December CompanyAs at 31 had shareholders’ 2013, its of own authority purchase to 38,947,286 up to ordinary shares.
The Company ordinary may by resolution remove any Director from office (notwithstanding any provisionof the Company’s Articles or any of agreement between the Company and such but withoutDirector, prejudice any claim to he or she may have for damages for breach any of such agreement). No special notice needs be given to any of resolution remove to a Director and no Director proposed be removed to has any special right protestto againstThe his Company or her removal. may, a Director, eithera Director, fillvacancy to a or as an additional Director and in either case whether or not for a fixedterm. Irrespective theof terms his of or her appointment, a Director so appointed shall hold office only until the nextfollowing AGM. If not reappointed at such Annual General Meeting, he or she shall conclusion. its at office vacate ordinaryby resolution, appoint another person in place a Directorof removed from office. Appointment and replacement of Directors of replacement and Appointment The Board may appoint a person who is willing act be to to Directors The Directors, their status and Board Committee memberships the of and Report. 78 are set out on pages 74-75 Financial and business reporting business and Financial The Board believes that the disclosures set out in the Strategic report on this pages of Annual 73 to 1 Report provide the information necessary for shareholders assess to the Company’s performance, business model and strategy. 31 December 2013. December 31 at least months the next from the this 12 date of report and that it is appropriate adopt to the going concern basis in preparing the consolidated financial statementsfor theyear ended Corporate governance Corporate Refer pages to 80 for to 77 a description the of Group’s concernGoing In assessing its going concern status, the Group has taken account its of 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. the December Group As at 31 held US$66 2013, million cashof and had net debt million, US$1,045 of with US$1,324 subject available facilities committed but undrawn of million statements Polymetal of International Plc for the year 2013. December 31 ended policies. and structure governance corporate the Netto debt/Adjusted EBITDA covenant compliance. The Board is satisfiedforecasts that the Group’s and possible reasonably of account taken having projections, changes in trading performance, show that the Group has adequate resources continue to in operational existence for The Directors submit the Annual Report Polymetal of financial audited the with together Plc International Governance reportDirectors’ Annual Report 2013 Polymetal International plc Governance 88/89
not have to makenot additional have to changes its existing to executive remuneration structure. It formalised some the of existing regulation new the by changes required adopted procedures, and presents in this annual report a comprehensive simple yet remuneration strategy and seeks shareholder approval the of whichpolicy, will come effect into immediately after the AGM and will apply for2014 three years. year-end, 99% Subsequent employees of 2013 entitled to the legacyto long-term incentive plan waived their entitlement these to options and will be granted options under the new LTIP. Due to unfavourable market conditions, the Remuneration Remuneration the conditions, market unfavourable to Due Committee decided that any significant changesto the existing approach remuneration to Directors of and senior officerswould of thebe inappropriate. Company 2014 in based Rouble in increase the approved Committee The Chief base Executive’s 8% by salary (there for 2014 whichwas versus no increase partially 2012), in 2013 depreciation significant more the for compensates theof Rouble against and theinflation. US Dollar (14%) The US Dollar equivalent the of Chief base Executive’s salary would decrease 5%. by maximum the opportunity of 88% of Annual bonus was awarded the Chief to Executive in respect 2013. of In the context the of changing regulations, Polymetal did Yours sincerely, Yours Leonard Homeniuk Committee Chairman, Remuneration and implementation for its Directors and provides details theirof remuneration and share interests for the year ended The Board believes December that for31 a Company 2013. whose shares are listed on the London Stock Exchange it is expected that the Directors’ remuneration policy report and annual remuneration report the of Company should be approved shareholders, by and it is an element good of seek this. to Company the for governance corporate report policy remuneration Directors’ the Accordingly, will be put a binding to shareholder and vote the Directors’ annual remuneration report will be put an advisory to shareholder at the Annual vote General Meeting the of Company May 2014. on 21 On behalf the of Committee, I welcome feedback from shareholders and look forward receiving to your support at the AGM. • Approach to disclosure This Report sets out the Company’s remuneration policy • • • year the during Changes •
In 2013 the Remuneration In 2013 Committee concentrated on finalising the Long-term Incentive Plan which(LTIP), was supported shareholders of 99.82% by who voted on The it. plan includes shareholder a total return (TSR) underpin stipulating that no options will vest in the event that TSR for the period is negative. Other features include the mandatory deferral 50% of an of annual bonus for three years in shares, clawback provisions, a one year holding shareholding minimum substantial a and plans, all period for requirement for the Company’s executives. Remuneration philosophy Remuneration The focus on sustainable shareholder value creation is the cornerstone our of executive remuneration system. The Company’s remuneration policy is ensure set to that Directors are fairly rewarded with regard the responsibilities to undertaken, and considers comparable pay levels in the countries operation of and the international mining industry. The executive remuneration and underlying strategy, policy, supports this enabling by the Company attract to and retain talent that will maximise shareholder value. Corporate and individual performance is taken account into in order ensure to comparability with other gold mining (such peers London-listed and worldwide companies benchmarking was last performed Remuneration in 2012). levels for non-executive Directors are based on comparable levels for companies a similar of nature, size and complexity, undertaken. responsibilities specific account into take and Context to the Committee’s decisions was a challenging2013 year for all miningcompanies. Polymetal,At continued we concentrate to on controlling performance operating delivering robust maintaining and costs, capital discipline. despite resilient However, operating and cost performance, the financial resultswere of the Company 2013 in and profit net Our conditions. market the by affected inevitably dividends decreased on the back significant of decline in commodities prices, however were we able sustain to free cash flow as a resultof decrease in capitalexpenditure and growth. production Another challenge stay was on the of to top changing remuneration disclosure requirements and ensure that all These compliant. fully be to place in put are procedures when decisions remuneration our in reflected are priorities senior and CEO the performance to bonuses awarding employees and reviewing their base salaries. committeedecisions Key • in setting pay levels and for the CEO, this is reviewed on an annual basis ensure to it remains in line with complexity. and size nature, similar a companies of years three every undertaken is benchmarking external An
Polymetal’s remuneration policy remains a key element key a remains policy remuneration Polymetal’s in line with best practices, and substantially aligned with the business strategy and performance. in providing a clear framework incentivise motivate, to and retain our senior management team. With the introduction As a FTSE250 whose company, shares are listed on the shareholders our that believe we Exchange, Stock London rightfully expect Polymetal comply to with the strictest in mind, the Remuneration Committee decided that any significant changesto the remuneration of Directors and inappropriate. be would 2014 during Company the officersof Instead have we put our efforts finalising into thePerformance Share Plan, approved at last AGM. year’s committed remain We requirements. governance corporate of fullto adherence all to regulatory requirements and, as such, decisions. and policies remuneration our in this reflect also As a result, consistently we receive over 95% the of votes in favour resolutions AGM of related remuneration to and reappointmentto This unequivocal Directors. of backing from shareholders in support the of Company’s decisions is very heartening as strive we develop to our remuneration policies a significantof amountof changesto disclosure requirements, this has been a challenging reporting However, year. I believe that Polymetal’s remuneration structure is both straightforward and substantially aligned with shareholder interests – as evidenced the by overwhelming support that the challenge with relative ease. to focusto on controlling costs, producing robust operating this performance With capital discipline. maintaining and This has enabledthis AGM. received meet us to at the 2013 Dear Shareholders was a challenging2013 year for all miningcompanies when sector the commodity prices in forced movements adverse Governance Remuneration report Annual Report 2013 Polymetal International plc Governance 90/91
of relative performance relative of performance and above TSR is negative, regardless performance median performancemedian No award will vest if absolute 100% vests at top decile 20% vests at median 0% vests for below Not applicable Not − vary substitute, may Committee The or waive the performance targets that consider to Committee the appropriate longer no is target the discretion has Committee The varyto the proportion of awards that vest, ensure to that the outcomes are fair and appropriate financial underlying the reflect and Group the performance of Vesting is based on relative − if an event occurs which causes TSR, measured against the constituents of the FTSE Gold Mines Index, and also on the TSR absolute Company’s and ranked are Peers − the Company’s position position Company’s the vesting: determines − continued employment employment continued over the deferral period Entitlement to this deferred deferred this to Entitlement to subject is component • • • • • Performance metrics metrics Performance applicable period and used •
500% of base salary for the CEO Maximum grant permitted under under permitted Maximum grant the plan rules is 200% of salary expected is level grant Normal be of baseto 150% salary equivalent is vesting Threshold 20%to of the award be will equivalents Dividend received on vested shares, reflecting the value of dividends which have been paid during the period from the grant date theto vesting date • • • • • Opportunity
The CEO is required build to over shareholding minimum a period five-year a Unvested shares under the PSP or DSA are not taken calculating when account into minimum the towards progress requirements shareholding 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 met is requirement shareholding Under this plan, annual rolling rolling annual plan, this Under awards are made with a four-year additional an and period vesting period holding mandatory of one year following vesting performance targets Stretching delivering participants for reward superior and absolute positive relative shareholder total return (TSR) performance global against peers over a long-term period the for apply provisions Malus unvested portion of the PSP; the may, Committee Remuneration at any time up and to including vesting, reduce the number of shares that vest, should material and/or misconduct, misstatement, a failure of risk managementoccur Retesting of the performance conditions in future years is not circumstances under any allowed First grants under the PSP are expected be to made in April 2014 50% of annual bonus earned is paid in cash and the remaining 50% is compulsorily deferred into shares which are released annually theto employee over the next three years in equal instalments the for apply provisions Malus unvested portion of the DSA; may, Committee Remuneration the at any time up and to including vesting, reduce the number of shares that vest, should material and/or misconduct misstatement, a failure of risk management occur will equivalents Dividend be received on vestedshares, reflecting the value of dividends which have been paid during the period from the grant date the to vesting date • • • • • • • • • • • • Operation
Minimum shareholding requirements strengthen To between alignment interests of executive Directors those and shareholders of Performance (PSP) Plan Share provide long-termTo with alignment shareholders’ interests Element and purpose/ and Element strategy to link (LTIP) Plan Incentive Long-Term Share Deferred Awards plan (DSA) to Deferral retention encourage alignment and shareholders with
on timeand within budget (30%) Completion of new projects projects new of Completion Health and safety (10%) Total cash Total costs (30%) Production (30%) Production to varyto the weighting of performance metrics over the policy. remuneration this of life The Committee has discretion discretion has Committee The has Committee the addition, In vary performance to discretion metrics part-way through there if performancea year is a significant event which causes the that believe to Committee the performance original conditions appropriate longer no are Performance is measured over − − year financial the − The annual bonus is earned is bonus annual The on the basis of the achievement weightings associated and for each would be: − of a mix of financial and non- measures financial performanceFor 2014, metrics Not applicable Not Not applicable Not Not applicable Not • • • • • • • Performance metrics metrics Performance applicable period and used
Maximum bonus opportunity Maximum – bonus of base150% salary opportunity – bonus Target 100% of base salary Threshold – Nil annual bonus for threshold performance threshold for Does not exceed the mandatory pension the to made contribution Federation Russian the of fund Currently of total 10% pay Not applicable Not a change in the scope of the occurs role The annual base salary for the reporting year and the current year is set out in the Annual Report Remuneration on Over the policy period, base salary for the Chief Executive will be set at an appropriate level within the peer group and will increase in line with base salary increases for the wider workforce, except where • • • • • • • • Opportunity
The annual bonus result is is result bonus annual The Committee the by determined after the year end, based on performance targets against Annual bonuses are paid three months after the end of the financial yearto which they relate 50% of annual bonus earned is paid in cash and the remaining 50% is compulsorily deferred into shares which are released annually theto employee over the next three years in equal instalments Share Deferred the through (DSA) plan Awards Details of the DSA are set out on the next page of the Russian Federation, Federation, Russian the of as required Russian by law The Company pays defined contributions of total of 10% pay fund. pension mandatory the to This permits retiring employees retireto and receive to a defined the from life for pension monthly pensionstatutory fund The Company does not fund any retirement or contributions pension benefits, except contributions fund pension mandatory the to The Company does not provide Executive Chief its for benefits any level of increases made across the whole, a as Company the remuneration of executives in and 250 FTSE in positions similar individual and peers, mining global performance base setting when salary for the following year The Committee reviews base base reviews Committee The salary on an annual basis, taking economic general account into and market conditions, underlying the performance, Company • • • • • • • • Operation
and strategy Annual bonus bonus Annual focus on achievingTo performanceannual goals, which are based on the key Company’s performance indicators (KPIs) Pension provide fundingTo for retirement Benefits Executive Director – CEO salary Base attractTo and Element and purpose/ and Element high-calibre retain executives Directors’ remuneration policy Directors’ The Committee will be requesting shareholder approval the of following remuneration policy at the Annual General Meeting strategy to link on 21 May 2014 to cover to a periodThe policy three of years. May will 2014 on apply 21 from the approval. date of Governance Remuneration report continued Annual Report 2013 Polymetal International plc Governance 92/93
2.0
million
7 . 1 Total Total US$
1.6 38% million
1.2 0 . 1 Single year variable year Single
Total Total US$ ■ Changes made during the year the during made Changes No changes made changes No made changes No Introduction of new plan (LTIP) See and below removal for details of EIP. made changes No
2% 1 0.8 million
33% 0.5
41% Total Total US$ 0.4 28% 100% 46% m $ Fixed elements of remuneration of elements Fixed variable year Multiple
Remuneration policy policy Remuneration US ■ ■ Maximum Target Minimum 0.0 Notes to the policy table Performance targets measures and The Committee selected the performance conditions indicated in the policy table because they are central the Company’s to overall and are strategy, the metrics key used under the annualbonus the oversee by CEO to and the operation LTIP business. the of Performance targets for all our incentive plans are reviewed annually, and where appropriate are typically set at a level that is in line with the Company’s forecasts. 2013 operating remuneration in from that Changes policy to Design element Design salary Base bonus Annual LTIP Directors Non-executive Note: Scenario values are translated at the closing exchange rate of the Rouble the to US Dollar stated by the Central Bank of the Russian Federation as December of 31 2013. The new LTIP followingIn April a detailed 2013, review market of practice and the remuneration packages the of Company’s executive management, carried out at the request the of Remuneration Committee, the Board Directors of proposed put to in place a new long-term incentive programme (the ‘Performance Share or Plan’ ‘PSP’) after the potential vesting awards of under the current Long-term EIP. The are terms described key the of new LTIP in the policy table above. The Board believes will that ensure the new LTIP continued alignment performance the of executive team’s with shareholder interests and will reward superior long-term performance and the creation sustainable of shareholderThe Board value. also believes is in line that with the LTIP UK best practice and fully follows the provisions the of UK Corporate Governance Code and other relevant guidelines, while also containing features which are superior common to practice in the UK – such as a positive TSR underpin for vesting the of LTIP. The PSP was put a shareholder to and, following at the in AGM June vote approval shareholders, 2013 of 99.82% by will be implemented upon vesting for those the of participants current or, EIP after June who 2014 have waived their rights from Aprilunder 2014. the EIP, remuneration policy of application Illustration of The composition and structure the of remuneration package for the CEO under three performance scenarios (Maximum performance, performance Target and Minimum performance) is set out in the chart below. These charts show that the proportion remuneration of 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 both of short-term and long-term performance targets and drives the alignment interests with the of CEO’s the interests shareholders. of
Not applicable Not Performance metrics metrics Performance applicable period and used •
Fees are reviewed, but not necessarily increased, increased, necessarily not on an annual basis Any increase in non-executive Director fees will normally be in line with base salary increases for the wider workforce, except where a change in the scope of the occurs role Current fee levels are set out in the Annual Report Remuneration on • • • Opportunity
attendance fee Board and Committee Committee and Board Committee Chairmanship fee; Chairmanship Committee fee; membership Committee The fees of independent non- executive Directors are set by reference those to paid other by companies mining 250 FTSE Fees are setreflect to the spent responsibilities time and by theby non-executive Directors on the affairs of the Company No feesare paid to non-independent Directors non-executive Non-executive Directors are not eligible receive to benefits and do not participate in incentive plans pension or The Chairman receives a base fee only The following fees are paid in addition the to non-executive Director base fee: − − − • • Committee Remuneration The determines the framework and broad the of remuneration the for policy of remuneration The Chairman. non-executive Directors is a matter for the Chairman of the Board and the executive members of the Board, the Directors CEO. i.e. discussions in participate not do relating their to own fees • • • • Operation
Remuneration policy for the wider group employees of is aimed at aligning pay with the achievement targeted of results for each The Company’s policyemployee. on fair pay leads the payment to additional of remuneration for employees living in difficult climatic locations and the delivery appropriate of levels pay for of differentThe bonus levels component work. of remuneration of for mid-level management and operational staff is measured based on the achievement production of targets, increasing Salaries are considered for annual increases based on the Company’s performance results, inflation rates and the competitive level salaries of versus the wider market. Group is consistent in both structure and KPIs with the policyin respect the of Chief Executive Officer. Whilst thevalue of remuneration will vary throughout the Group, depending upon the individual’s role, criticality the business to and level seniority, of the remuneration all of senior executives consists a base of salary, an annual bonus and participation (the in PSP the new LTIP and DSA). Employees three up to levels below the Board (approximately 300 employees throughout the Group) are expected participateto at the discretion in the LTIP the of RemunerationThe Committee. PSP policy grant level base of is salary 150% 100%for for the Executive CEO, Committee members for employees and 50-100% the of level below the Executive Committee. Shareholding requirements are alsoThe set below DSA operations Board level. mirror the arrangement set out for executive Directors in the policy table,where 50% the of annual bonus is compulsorily deferred shares into and released annually employeesto over a period three of years. output, the level justified of cost savings and health and safety records.terms In of pension arrangements, the Company applies a consistent approach for the CEO and other employees and adheres themandatory to pension contributions required under laws. applicable Remuneration policy for other employees other for policy Remuneration The remuneration policy for the other members the of Company’s executive team and broader management team the of Non-executive Directors Non-executive Fees for non- Directors executive attractTo and retain non- high-calibre executive Directors Element and purpose/ and Element strategy to link Governance Remuneration report continued Annual Report 2013 Polymetal International plc Governance 94/95
JSC Polymetal JSC Company effect from immediate With Director from month 1
No entitlement in respect of directorship of Polymetal International. Polymetal of directorship of respect in entitlement No Up three to times average monthly salaries in respect of directorship of JSC Polymetal. Where an executive Director’s employment is terminated after the end of the performance but before year, the payment of the annual bonus is made, the executive may be eligible for an annual bonus award for that performance year subject an to assessment based on performance achieved over the period. No award will be made in the event misconduct. gross of Where an executive Director’s employment is terminated during a performance a pro-rated year, annual bonus award for the period worked in that performance year may be payable, subject an to assessment based onperformance achieved over the period. In normal circumstances, Deferred Share Awards will continue until the normal time of vesting upon cessation performance. for or employment of of employment way by of injury, ill-health, disability, redundancy, retirement, or any other circumstances which the determines. Committee Alternatively, the Board may determine that Deferred Share Awards will vest immediately. In both circumstances there would be nopro-rating of the Deferred Share Awards for time from the award date until cessation Any outstanding award will lapse at cessation of employment with the Company, unless the reason for cessation due death, to injury, ill-health, disability, redundancy, retirement, or any other circumstances which the Committee determines, when the award will vest as normal in accordance with the terms of the award. proportion the with immediately, vest will award the of proportion a that determine may Committee the Alternatively, determined the by Committee, taking into account (where relevant) the extent which to the performance conditions have been met or are likely be to met at the end of the performance period, and any other factors the Committee relevant. consider may The number of shares shall also normally be pro-rated down reflect to the reduced service period. Any discretion available in determining the treatment of incentives upon termination of employment isintended only be to relied upon provide to flexibility in unusual circumstances. departure Director’s the of particular circumstances the account into take will determination Committee’s The and the recent performance of the Company. each or any award will not vest where there is a corporate event resulting in a new person or company acquiring control of the Company, but will instead be exchanged for new awards, on an equivalent basis, over shares in the or company; new may case (as the exercisable become or vest shall awards the of proportion a that determine may Committee the be), taking into account such factors as the Committee may consider relevant including, but not limited the length to, of time the award has been held at the time the change of control event occurs and having regard performance to award. the on imposed performance conditions other or targets Polymetal International Polymetal 6 months from Company from months 6 Director from months 6 • • • • • • • • • • • In relation to Performance Share Plan awards: Plan Share Performance to relation In • • vest, shall awards the of proportion a that determine may Committee the Awards, Share Deferred the to relation In relevant. consider may Committee the as factors such account into taking Policy and operation and Policy
Service contracts and policy on payment for loss of office Loss of office policy The Committee’s approach when considering payments in the event termination of take account is into to individual circumstances, including the reason for termination, contractual obligations both of parties as well as applicable share plan Area period Notice and pension scheme rules (including any relevant performance conditions). relevant any (including rules scheme pension and Please that note Mr Nesis is a Director both of Polymetal International plc and JSC Polymetal, a 100% subsidiary theof Group incorporated in Russia. Further detailsare set out in the Current Directors’ service contracts section below. The table below summarises the elements key the of executive Director service contracts and policy on payment for loss of office. Compensation for loss of office in service contracts Treatment of annual of Treatment awards bonus Treatment of of Treatment Deferred unvested Awards Share rules plan under Treatment of of Treatment Performance unvested awards Plan Share rules plan under Exercise Exercise discretion of Change of control of Change
Share priceperformance is in the Mines Gold FTSE of decile top Index constituents Shares equivalent 150% to of base salary vest under the PSP of total(100% shares available) Performance against financial against Performance KPIs is at budgeted levels achievement Full KPIs non-financial of of base150% salary payout (100% of maximum opportunity) of (100% awards DSA Includes • • Maximum • • • •
maximum annual grant permitted under the the under permitted maximum grant annual
(20% of total shares available) Scenario is based on 150% awards policy Share price performance is at median of FTSE Gold Mines Index constituents Shares equivalent 30% to of base salary vest under the PSP Performance against financial against Performance KPIs is at budgeted levels achievement Full KPIs non-financial of 100% of base salary payout (77% of maximum opportunity) of (77% awards DSA Includes • • • On-target • • • •
maximum annual opportunity is 150% of base salary. base of maximum 150% opportunity annual is
Share price performance is below the median of FTSE Gold Mines Index constituents No shares vest of quantum or vesting period than the awards due be to forfeited as a consequence of the individual joining the Company. In determining the quantum and structure of any replacement awards, the Committee will seek replicate to 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 the by Company. Such relocation support may include, but notbe limited to: payment of legal fees; removal costs; temporary accommodation/hotel costs; a contribution grant may Committee the stamp circumstances, to duty; appropriate in and and addition, In replacement items. household non-transferrable of additional support in relation the to 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. The base salary level will be set taking by into account the experience of the individual and the salaries paid 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 participate to at the in the Remuneration LTIP Committee’s discretion in line KPIs is below budget more by than 10% Non-achievement KPIs non-financial of 0% payout companies. comparable in Depending on the circumstances of any particular appointment, the Committee may choose set to the base salary below market median and increase the amount paid over a period of time achieve to alignment with market levels for the role (with reference the to experience and performance of the individual), subject the to Company’s ability pay. to In line with the remuneration policy, as set out in the Directors’ remuneration policy table, no benefits will be provided Directors. recruited to law, applicable other any or Russian by required contributions mandatory the to limited be will contributions Pension as set out in the Directors’ remuneration policy table. The Executive Director will be eligible participate to in the annual bonus scheme as set out in the Directors’ The table. policy remuneration The table. policy remuneration Directors’ the in out set details the with scheme rules is 200% of base salary and the normal grant level is of base up 150% to salary. Performance measures would apply, as set out in the remuneration policy table. The Committee will seek structure to any replacement awards so that overall they are no more generous in terms Base salary pension Base and financial against Performance • • • • • • • • • • • • • • • • Minimum Policy and operation and Policy
Multiple Multiple year variable at a level consistent with the scope the of role (at a level not exceeding that the of CEO as set out in the remuneration policy table) and be subject the same to constraints as those existing of Directors performing similar roles, as shown below. Other Area salary Base and benefits and The following table sets out the various components which would be considered for inclusion in the remuneration package for the appointment an of executive Any new remuneration Director. Director’s package would include the same elements, be set Long-term incentives Approach to recruitment remuneration recruitment to Approach The Committee’s approach recruitment to remuneration pay a competitive is to overall package as appropriate attract to and motivate the right talent for the role. If an executive is promoted the Board to from within the any Company, pre-existing awards or benefits thatwere madeavailable to him or her priorto becoming a Director (and not in anticipationof an imminent promotion the Board)to will be retained and allowed vest to or be provided under the original terms. No allowance has been made for share price appreciation or for the payment dividend of equivalents. Non-executive Directors do not receive performance-relatedTheir fees are disclosed pay. in the policy table on page 97. Pension bonus Annual Replacement awards Fixed elements Fixed The scenarios are defined follows:as Single year variable Governance Remuneration report continued Annual Report 2013 Polymetal International plc Governance 96/97 – – – ●
2012 2012
258,418 208,051 264,997 449,253 236,220 Maximum 1,416,939 1,037,403 Total
– – – ● 2013 Total fees Total 2013 Target 1,081,572 212,516 270,762 242,265 450,999 450,999 264,398 1,440,940 ● 2012 ● 37,261 Below Pension 2013 47,800 10% 30% 30% 30% Weight – 2012
– Long-term 2013 incentive plans incentive 2012 1 542,091 2013 Annual bonus Annual 599,624 – 2012 – 2013 Taxable benefits Taxable 2012 458,051 Base salaryBase 2013 434,148 nnual reportnnual remuneration on 50% of the bonus received has been deferred into 30,081 shares March on 11 at £5.68 (RUB per share 317) (usingbe allotted average in April price following 2014 for 90 days release preceding of the Company’s the bonus financial award).The shares results. will In line with policy,March anddeferred 2016 March and are 2017 notshares subject will further to be released performance in equal tranches conditions. over a period of three years in March 2015, The amounts are translated at average rates of the Russian Rouble the to US Dollar respectively. and for 2013 2012, Total non-executive fees non-executive Total Jean-Pascal Duvieusart Jean-Pascal Marina Grönberg Marina Statement of consideration of employment conditions elsewhere in the Group the in elsewhere conditions employment consideration of of Statement In determining salary increases the for the Committee CEO, takes account into a range factors, of including overall base salary increases awarded the wider to employee population during the year. The Committee does not directly consult with employees on the appropriateness pay arrangements, the of CEO’s but any comments received the by Company will be considered. A Single total figure of remuneration (audited information) – US$ The remuneration tableThe remuneration CEO’s below is sets denominated out 2013 for the CEO. in Russian Roubles and convertedUS$ to for presentationThe purposes. approach exchange to rates and Russian Rouble remuneration equivalent is set out this in the to table. note 1 2 Completion of new projects on time and within budget within and time on projects new of Completion Health and safety for increasing the share price and delivering superior performance over a long-term period. options were12,000,000 granted Mr Nesis to under subject the EIP with a vesting a vesting to condition. date in June 2014, as of the dates of each payment. not subject the same to reporting requirements as the Performance Company. against these targets is set out below: Measures budget production Achieving CashTotal Cost per ounce of gold equivalent produced This resulted in the CEO receiving a bonus 88% of maximum of opportunity salary; of for the year (133% US$599,624). LTIP No share options No vested options or were were exercised granted Mr in Nesis to 2013. or other Directors in 2013. The EIP was prior adopted reward senior key to the in September Company’s IPO, to executives, 2010, including the CEO, As at the this date of Report, Mr Nesis has waived all his rights under the legacy Long-term EIP. Scheme interests awarded during the financialyear No share awards were made the CEO to in 2013. Details total fees of paid non-executive to Directors and the Chairman are set out during in the table 2013 below: Godsell Bobby Notes: The amounts are and for translated 2013 2012 at cross-rates of the British Poundand the US Dollar the to Russian Rouble stated by the Central Bank of the Russian Federation information) information additional – (audited remuneration of figure total Single Annual bonus targets and outcomes disclosure their that information the of because sensitive commercially considered are measures bonus annual for targets The may provide the Company’s competitors, to given that these competitors are largely based outside the of UK and hence are Jonathan Best Jonathan Russell Skirrow Balfour Charles Leonard Homeniuk Leonard Yanakov Konstantin US$
Notice period Notice 1 month 1 month 1 month 1 month 1 month 1 month 1 month 1 month fund of the Russian Federation Federation Russian the of fund Date of contract or appointment 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 2011 September 29 1 September 2013 September 1 August31 2018 None pension mandatory the to contributions defined for except None, Dates contract of or appointment for non-executive Directors are set out in the table below: The full terms and conditions appointment of the of CEO are available for inspection at the Company’s registered office in Jersey. views shareholder consideration of of Statement The Committee consults with the Company’s major shareholders regularly, and seeks their feedback remuneration on the CEO’s shareholdersThis year, werepolicy. extensively consulted around the new long-term incentive arrangements, and the structure of hisof or her appointment. Each non-executive Director is subject confidentiality to restrictions without limitation time.in takes account into theof new LTIP some the of comments made shareholders. by The plan was put a shareholder to vote and, followingat the in AGM June approval shareholders 2013 of 99.82% by who will voted, be implemented upon vesting theof current EIP. Director Non-executive Directors Non-executive Directors do not have service contracts. the terms their Rather, of appointment are set out in letters The full terms and conditions appointment of the of CEO are available for inspection at the Company’s registered office in Jersey. of JSCof Polymetal (a 100% subsidiary Polymetal of which provides management services subsidiaries) each to the of Group’s and arrange for its commercial, economic, social and other activities with a view providing to for JSC Polymetal’s further The employmentdevelopment. contract does not contain any specific groundsfor early Thetermination. contract can be terminated at any notice time Mr on by one Nesis month’s and with immediate effect JSC Polymetal by in accordance with RussianThis labour could and result civil in compensation law. three of average monthly salaries. The appointment appointment.of each of the of non-executive Directors took effect from admission until the next AGM the subjectof Company, annual to The re-election. appointment any of non-executive Director may be terminated at any time in accordance with the ArticlesThe Association. of appointment each of non-executive Director may be terminated either by party notice. A non-executive on one month’s Director is not entitled receive to any compensation on termination Godsell Bobby Balfour Charles Yanakov Konstantin Duvieusart Jean-Pascal Grönberg Marina Best Jonathan Russell Skirrow Homeniuk Leonard Mr Nesis entered an into appointment letter with the Company in relationThis his to appointment appointment as a Director. Expiry of term Expiry of Payment in lieu of notice Pension Date of contract Current Directors’ serviceCurrent Directors’ contracts CEO The table below highlights elements key the of service contract the of CEO with JSC Polymetal: Following the expiry the of previous five-year employmentPolymetal, JSC 100% contract, 23 a August on subsidiary2013, took effect from the admission date of shares of trading to on the London and Stock Exchange October on 28 2011 is subject annual to re-election. Mr Nesis does not receive any fees in respect his of appointment as a Director Polymetal of International plc but is entitled reimbursement to his of reasonable expenses incurred in relation the carrying to out hisof duties Appointment as a Director. Mr of Nesis as a Director may be terminated at any time in accordance with the ArticlesAssociation. of Mr Nesis can terminate his appointment as a Director on six months’ notice. He is not entitled receiveto any compensation in respect his of role as Director on termination this of appointment. theof Company incorporated in Russia, entered an into employment contract with Mr Nesis as its Chief Executive Officer. The contract becameThe contract effective was entered for on into a period 1 September five of years 2013. andexpires Under the August termson the of 31 contract 2018. the Chief Executive Officer undertakesto perform general management Governance Remuneration report continued Annual Report 2013 Polymetal International plc Governance 98/99
-5%
+8%
% change 1
2013 salary Roubles 14,400,000 US$452,148 1 2014 salary Roubles 15,600,000 US$428,546
3 209 -68% before tax Underlying profit 655
2 Regular dividends 125 -53% Special Special dividends Regular dividends 191 77 Return to shareholders to Return 1
370 2013
■ +3%
2012
Total employeeTotal pay 360 Relative importance of employee pay employee of importance Relative US$m ■ Total dividendsTotal were taken from the to Note accounts. 17 Regular dividends include both interim and final dividends for the year. Special dividends are the dividend paymentswhich, in accordance with Company’s policy, are considered by the Board annually basedon the Company’s current and expected free cash flow. Base salary is translated for 2014 at the closing exchange rate of the Rouble the to US Dollar statedBase by the Central salary Bank is for translated of 2013 the Russian at the Federation average exchange as of 22 March rate of Rouble 2014. US to Dollar stated by Central Bank of Russian Federation during 2013. Total spend Total on pay is as set out in the to Note accounts. 13 Underlying profit before tax excludes pre-tax impact of impairment charges. in the year was 3%. ensure the comparabilityTo this of figure, to andminimise distortions, the all-employee remuneration figure is on the basis full-timeof permanent employees. Relative importance of spend on pay The chartbelow shows how staff remuneration costs compared profit to before tax and distributions madeto shareholders Percentage change in CEO remuneration CEO in change Percentage Excluding the value long-term of incentives, the percentage change in remuneration total The average forpercentage the CEO was increasing 4% change in 2013. in remuneration total for all employeesUS$1,081,572 to in 2012 from US$1,037,413 and 2012. in 2013 1 2 3 year financial following the remuneration in Implementation of policy the Committee intendsIn 2014 implement to the executive and non-executive Directorremuneration policies as follows: salary Base The policy base for salaries determining 2014 will remain unchanged. is set Base out below: salary and 2014 for the CEO for 2013 CEO 1 The RemunerationCommittee decided increase to the base salary in Rouble terms the of for CEO the in first 2014 time since having taken account into the inflation in Russian2011, Federation, wellas as significant devaluation of the Russian Rouble against the US Dollar duringThe US Dollar the period. equivalent the of base salary has decreased compared 5% by 2013 to as a result the of Rouble devaluation. benefits and Pension No pension or benefitsexcept for theplans defined are in place pensionfor 2014, contributions to the mandatory pension fund theof Russian Federation. Annual bonus The targets for annual bonus measures are considered commercially sensitive, particularly in the gold mining industry, because theof sensitivity information of that their disclosure may provide the Company’s competitors, to given that these arelargely based outside the UK and hence are not subject the same to reporting requirements as the Company. Long-term Incentive Plan (Deferred Share Awards Plan and Performance Share Plan) Plan Awards Share Deferred The Committee intends defer to annual bonus awards performance earned for the 2014 period in line with policy. – –
met yes 2009 Dec 2013 291,172 Guideline
Nov 2013 – – Oct 2013 2010 Sep Current 2013 6,679% (% salary) 248,565 shareholding Aug 2013 1 – – – – Jul 2013 2011 137% in year Jun 2013 Exercised 1,138,013 May 2013 – – – – Apr 2013 2012 90% Options held Options Mar 2013 1,0 37,413 Vested but unexercised Feb 2013 – – – – 2013 Jan 88% 2013 1 Subject to Subject conditions Dec 1,081,572 2012 performance Nov 2012 Shares held Shares 2,000 Oct 2012 Owned outright 64,000 3,100,000 Sep 2012 – – Aug 2012 500% Jul 2012 (% of salary) requirement Shareholding Jun 2012 May 2012 Apr 2012 Mar 2012 FTSE Gold Mines Gold FTSE
■ Feb 2012
Jan 2012 FTSE 250
Dec 2011 ■
Nov 2011 Oct 2011 Polymetal
The CEO is required retain to a shareholding equal five times to shares. his base232,067 salary,i.e. For the purposes determining of whether the requirements have been share met, price is measured at the end each of financial Sharesyear. arevalued for these purposes at the year-end price(US$9.48)of £5.75 per 31 shareDecember at 2013 translated at the closing exchange GBP of rate Russian to Rouble December as 31 of 2013. Shares that count towards shareholding requirements include unfettered shares. Total shareholder return shareholder Total % ■ 80% 60% 40% 20% 180% 160% 140% 120% 100% of maximum opportunity in 2011. maximum opportunity in of An additional 49% comprised bonus bonus annual the was bonus, awarded additional the Excluding by the IPO. Remuneration the about bring successfully to CEO as Committee responsibilities day-to-day normal his Mr to Nesis beyond and above for time the of successfulamount IPO of the Company in November Mr Nesis was 2011. required devote to a significant There have been no changes in the Directors’ shareholdings between December 31 and 2013 the date of this Report. Bobby Godsell Bobby Leonard Homeniuk Leonard LTIP award – % of maximumLTIP Director Directors’ shareholdings (audited information) shareholdings Directors’ • • • The table below sets out the number shares of held, or potentially held, Directors. by Loss of office payments or payments to past Directors (audited information) No loss office of payments or paymentsto past Directorswere made in theyear under review. Total pension entitlements (audited entitlements information) pension Total definedSave for the Group’s contributionsto the mandatory pension fundof the RussianFederation during the financial year ended no Decemberamounts 31 were set aside 2013, or accrued the by Group provide to pension, retirement or other benefits management. senior and Directors the to 1 CEO total remuneration CEO’s pay in lastCEO’s fiveyears ’000 US$ Annual bonus – % of maximum Performance graph and table table and graph Performance The graph below illustrates the Company’s TSR performance relative the constituents to the of FTSE Index 250 (excluding investment companies), which of the Company is a constituent, from the the date of Company’s admission trading to on the provide context theTo Company’s performance to London in its Stock specific Exchange sectorof in Octoberoperation, 2011. alsowe provide an illustration the of Company’s TSR relative the constituents to the of FTSE Gold Miners Index. 1 Vitaly Nesis Vitaly Governance Remuneration report continued Annual Report 2013 Polymetal International plc Governance 100/101
32,095 Withheld
.
Votes against Votes 809,134 ( 0.25%) . his LTIP was approvedhis shareholders by LTIP and at the held AGM in 2013; reviewed and approved Board expenses and reimbursement policy; 2012; for bonuses approved and reviewed reviewed individual and corporate performance the of CEO and senior executives, and set KPI levels for 2013; approved Remuneration report for the year ended December 31 2012; following review the of Company’s remuneration policy and practices ensure to that they remain aligned with the objectives theof business and in line with the UK Corporate Governance Code and bestpractice, the Committee proposed the introduction the of new Long-term Incentive Plan (LTIP), replace to the Employee Incentive Programme once it expires T reviewed proposed changes the remuneration to report regulations and agreed the approach disclosure to in future years. Although these regulations are not expected formally to apply the the Company, Committee to believes that as a FTSE 250 company whose shares are listed on the London Stock Exchange, it is in keeping with good corporate governance to voluntarily adopt the new disclosure provisions, including carrying out a binding on remuneration vote AGM. policy at the 2014 of Practice,of and incorporates the principles Voluntary of Code Practice of its into engagement. No other services were provided Fees PwCby paid PwC during to in relation 2013. remuneration to services provided the totalled Committee to in 2013 US$54,500, with fees quoted in advance and based on the level complexity of the of work undertaken.The Committee Leonard Homeniuk Committee Chairman, Remuneration Votes for 320,242,860 (99.75%) thisAt meeting, the Company’s new long-term incentive plan with shareholders of was 99.82% put a vote, to in favour the of introduction the of new plan. Advisors The Committee appointed PricewaterhouseCoopers LLP (‘PwC’) as independent external remuneration consultants provide to support in relation the design to and operation and on the the of new changes LTIP associated withthe new remuneration report regulations. PwC is a memberthe of Remuneration Consultants’ Group (‘RCG’) and a signatory the of RCG Voluntary Code reviews the objectivity and independence the of advice it receives from PwC at a private meeting held on an annual basis. theDuring Committee its work in was 2013, also aided the by Chief Executive Officer, and senior finance and human resources executives the of Company. appointmentPWC’s was made a competitive of way by results tender, which of were presented the Remuneration to Committee approval. for Approval This report was approved the by Board Directors of and signed on 30 March on its behalf 2014 by The full terms reference of the of Remuneration Committee can be found in the Corporate Governance section on the www.polymetalinternational.com website: Company’s remuneration Directors’ matters to relating of Directors the by Consideration further two occasions. on resolutions written by approved was Committee Remuneration the by conducted business Further the meetings the of CommitteeIn 2013 covered the following areas: key • • • • • • The Board considers that the composition and work the of Remuneration Committee complies with the requirements of theof UK Corporate Governance Code. Following external Board evaluation, the Committee reviewed its performance and noted feedback provided with the assistance external of consultants. Statement of voting at AGM June, for held votes the AGM, Remuneration on 12 theAt 2013 report were as follows: No fee
0%
Role (US$) 20% 4,946 100% Payout 24,729 16,486
49,458 412,150 164,860 Member Member 2013 fees 2013 additional additional Chairman per meeting
No fee (US$) 4,946 24,729 16,486 49,458 412,150 164,860 2014 fees 2014 additional additional per meeting per Median performanceMedian TSR vs. FTSE Gold Miners Upper decile performance decile Upper Below median performance median Below to make recommendationsto the Board to policy on the on Group’s the remuneration executive of management; determine,to within agreed terms reference, of the remuneration the of Chairman and specific remuneration packagesfor each theof Executive the Company Director, Secretary and the members senior of management, including pension rights and any compensation payments; formulateto suitable performance criteria for the performance-based executive pay of management; reviewto and oversee all aspects any of executive share scheme operated be or by established to the by Company; and overseeto and advise the Board on any major changes in employee benefit structures throughout the Company or the Group. Committee membership fee (not payable to the Committee Chair) Committee the to payable (not fee membership Committee Board and Committee meeting attendance fee Chairman of other Committees other of Chairman Independent non-executive Director basic fee fees Additional Chairman Committee Risk and Audit Senior Independent Director Independent Senior Non-executive Directors Non-executive The policy for determining non-executive Directors’ fees will and 2014 be unchanged Fee rates for 2013 from 2013. or if the Company’s absolute TSR performance is negative, regardless relative of performance. are set out below: Chairman Non-executive Role Straight-line vesting will occur between the points set out above. No award will vest for performance below median, Below threshold Below Vesting is based on relative TSR measured against the constituents the of FTSE Gold Mines Index and on theCompany’s absolute TSR. Peers are ranked and the Company’s position determines vesting: Performance Share Plan Plan Share Performance The Committee intends in line make an to with awardunder the disclosed the the PSP CEO to in 2014, policy on pages 90-91. Remuneration report continued The principal functions the of Remuneration Committee under its terms reference of are: • • • • • Name and the US Dollar the to Rouble stated by the Central Bank of the Russian Federation as December of 31 2013. CommitteeRemuneration The Remuneration Committee comprises three independent non-executive Directors who have no personal financial interest, other than as a shareholder, in the matters be decided. to As a result Mr of Balfour’s decision offer not to himself for re-election a replacementas a Director, member the of Remuneration Committee will be appointed the following the In AGM. 2012 Company sold Amikan 100% of Holdings Limited, which owns the Veduga gold deposit (‘Veduga’) in the Krasnoyarsk region Note: Non-executive Director fees are denominatedin Pounds sterling and for presentation purposes the figures are translatedto US$ at cross-rates of the British Pound The membership the of Remuneration Committee is shown in the table below. of theof Russian Federation, Polygon to Gold Inc. (‘Polygon’). Mr Homeniuk serves Executive as Polygon’s Chairman and CEO. Polygon operates as a standalone company with independent management and Polymetal provides certain technical one and Polygon and in equity ownership 42.6% holds currently Polymetal basis. ongoing an on Polygon to assistance regulatory theof four board seats and therefore has significant influence, but doesnot have controlover its Theactivities. Board continues considerto Mr Homeniuk be an to independentThe Board non-executive concluded Director. that the relationship between Polymetal and Polygon is not material, given the carrying value its of interest financial in Veduga in the Group’s statements which million is US$15.6 and represents approximately assets total December the of as Group’s at 31 0.5% 2013. Leonard Homeniuk Leonard Best Jonathan Balfour Charles Threshold Maximum Governance Annual Report 2013 Polymetal International plc Financial statements 102/103
How the scope of our audit responded the to risk We criticallyWe assessed developments in the wider economic environment and the performance of the CGUs in the year management’s challenge to management, operational Group and assessment of the existence of impairmentindicators. Where indicators were identified and valuations were performed, integrity and principles the testing included procedures audit our comparison through assumptions challenging and models the of with externally and internally derived data for the inputs key such through visiting certain operations and meeting with local as the discount rate used, expected metal prices, and foreign exchange rates. E&D assets of valuation detailed a undertook Management we performed detailed testing assess to the validity of costs capitalised in the year. for impairment, which included a summary of the group’s current current group’s the summary a of included which impairment, for licence obligations and an assessment of the likelihood of future management’s as well as activities exploration of success basis. consistent a on assessedWe the recoverability of the assets meeting by with reviewing E&D assets, material discuss to management operational drilling and other testing results in the year and confirming future development plans. reviewed We Board-approved budgets for and committed were projects exploration that check to 2014/5 future plans for further E&D expenditure were prepared
give a true and fair view of the state of the group’s affairs as at December 31 and of 2013 the group’s loss as adopted the by European Union; and have been prepared in accordance with the Companies (Jersey) Law 1991. have we concluded that the directors’ use the of going concern basis accounting of in the preparation the of financial and appropriate; is statements have we not identified any material uncertainties that may cast significant doubtability on thegroup’s to continue for the year then ended; then year the for have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as a going concern. Opinion on financial statements financial on Opinion financial the statements: opinion our In • • Income, Comprehensive of Statement Consolidated Statement, Income Consolidated the comprise statements financial The the and flows Cash of Statement Consolidated Equity, in Changes of Statement Consolidated Sheet, Balance Consolidated The financial reporting frameworkrelated 37. notes 1 to that has been applied in their preparation is applicable law and IFRSs as adopted the by European Union. concernGoing have reviewedWe the directors’ statement on page 86 that the Group is a going concern. confirm We that: • • • becauseHowever, not all future events or conditions can be predicted, this statement is not a guarantee the as group’s to ability continue to as a going concern. misstatement material of risks of assessment Our The assessed risks material of misstatement described below are those that had thegreatest effect on our audit strategy, the allocation resources of in the audit and directing the efforts the of engagement team: Risk Recoverability of PP&E and Goodwill Recoverability of PP&E and goodwill is dependent which of determination the assumptions, several on requires a significant level of judgement 18).(see note Management has assessed whether any indicators of impairment existed at its seven cash generating units (‘CGUs’) (as set out in Note 5). Where an indicator of impairment was identified, it assessed the recoverable amount of the CGU ensure to this was not less than its net book value. Recoverability of Exploration and Development (E&D) assets Recoverability is dependent on the expected future success has it once capitalised is E&D expenditure activities. exploration of property economically mineral be can the that determined been developed.The valuation assessment of each asset’s future judgement. significant requires prospectivity December 31 At the group held 2013 US$337 million in respect Sheet. Balance the on E&D expenditure of Independent report auditor’s to the members of PolymetalInternational plc
the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view understandable information; understandable provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users understandto the impact particular of transactions, other events and conditions on the entity’s financial position and financial performance; and make an assessment the of Company’s ability continue to as a going concern. theof 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 the into strategic report, includes a fair review the of development and performance the of business and the position theof company and the undertakings included in the consolidation taken as a whole, together with a description the of principal risks and uncertainties that they face. properly select and apply accounting policies; accounting apply select and properly and comparable reliable, relevant, provides manner that a in policies, accounting including information, present Vitaly Nesis Vitaly Executive Chief 30 March 2014 Bobby Godsell Chairman of the Board of Directors The Directors are responsible for the maintenance and integrity the of corporate and financial information included on the Company’s website. Legislation in the UK and Jersey governing the preparation and dissemination financial of statements Responsibility statement confirmWe to the that bestof our knowledge: • for the prevention and detection fraud of and other irregularities. jurisdictions. other in legislation differ from may • • The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial positionof the Company and enable themto ensure that the financial statements comply with the Companies (Jersey) They are also responsible for safeguardingLaw 1991. the assets the of Company and hence for taking reasonablesteps • By order the of Board The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law Company law requires the Directors prepare to financial statementsfor each financial Under thatyear. law the Directors are required prepare to the Group financial statements in accordance with International Financial Reporting Standards as adopted for use in the European Union(IFRS). The financial statements are requiredto by be law properly prepared in accordance In virtually all circumstances, a fair presentation will be achieved compliance by with all applicable the Directors IFRSs.However, are also required to: • • and regulations. regulations. and with the Companies International (Jersey) Accounting Law 1991. Standard 1 requires that financial statements present fairlyfor each financial year financial the Group’s position, financial performance This and requires cash flows. the faithful representation theof effects transactions, of other events and conditionsin accordance with the definitions and recognition criteriafor assets, liabilities, income and expenses set out in the International Accounting Standards ‘Framework Board’s for the preparation and presentation financial of statements’. Financial statements Financial Directors’ responsibility statement Annual Report 2013 Polymetal International plc Financial statements 104/105
have not been received from branches not visited us; by or the financial statements are not in agreement with the accounting records and returns. we havewe not received all the information and explanations require we for our audit; or proper accounting records have not been the kept by parent or proper company, returns adequate for our audit materially inconsistent with the information in the audited financial statements; or apparently materially incorrect based on, or materially inconsistent with, our knowledge the of group acquired in the course of performing our audit; or performing audit; our of otherwise misleading. • have nothingWe report to in respect these of matters. Statement Governance Corporate Under the Listing Rules are we also required review to the part the of Corporate Governance Statement relating the company’s to compliance with nine provisions the of UK Corporate Governance Code. have nothing We report to arising from our review. Our duty read to other information in the Annual Report Under International Standards on Auditing (UK and Ireland), are we required report to you if to in our opinion information should have been disclosed. confirm We thatwe have not identifiedany such inconsistencies or misleading statements. Other matters In our opinion, the part the of Directors’ Remuneration Report be audited to has been properly prepared in accordance with the provisions the of UK Companies Act 2006 as if that Act had applied the company. to auditor directors and responsibilitiesRespective of As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation an assessment of: whether the accounting policies are appropriate circumstances the group’s to and have been consistently applied and adequately disclosed; the reasonableness significant of accounting estimates madeby the directors; and theoverall presentation the of financial statements. In addition,we read all the financial and non-financialinformation in the annual report Matters on whichwe are required to report by exception records accounting received and explanations of Adequacy Under the Companies (Jersey) are we required Law report to 1991 in our you if, opinion: to • • in the Annual Report is: • • consider we which committee audit the to communicated we that matters those discloses report annual appropriately the theof financial statements andfor being satisfied that they a give true and fair Our responsibilityview. to is audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland).Those standards require comply us to with the Auditing Practices Ethical Board’s Standards for Auditors. also We comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim ensure to that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team, strategically focused second partner reviews and independent partner reviews. This report is made solely the company’s members, to in accordance as a body, the of Companies with Article (Jersey) 113A Our audit work has beenLaw 1991. undertaken so that might we the company’s members state to those matters are we required them state to in report to an the auditor’s fullest andTo extent for no other permitted purpose. do we not accept law, by or assume responsibility anyone to other than the company and the company’s members for our as a body, audit work, for this formed. have we opinions the for or report, Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether This includescausedby fraud or error. identifyto material inconsistencies with the audited financial statements to andidentify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired us by in the course performing of the • In particular, are we required consider to whether have we identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the annual report balanced is fair, and understandable and whether audit. If become we aware any of apparent material misstatements or inconsistencies consider we the implications for our report. Christopher Thomas Christopher for and on behalf of Deloitte LLP Auditor Recognized and Accountants Chartered UK London, 30 March 2014
How the scope of our audit responded the to risk We testedWe the existence of metal inventories through attending inventory and locations operating material at management by conducted counts performing detailed roll forward testing from thecount dates through yearto end testing by management’s metal inventory models. testedWe the recoverability of metal inventories through the recalculation of projected net realisable values based on expected the in prices used with consistent commodity prices (which were PP&EGroup’s and goodwill impairment calculations) and costs complete.to also We performed a detailed analytical review calculations. costing inventory management’s of management’s reviewing by obsolescence for inventories tested We appropriate was there whether assessing and plans mine strategic provisioning in place, where stockpiles are no longer expected beto used. examinedWe the assessment Group’s of its potential tax exposures, including related interest and penalties, and we utilised tax audit specialists, both in Russia and in Kazakhstan, assess to the likelihood crystallising. exposure an of provisions to received court documentation reconciled We recognised or settlements paid and disclosures made in Note 16. consideredWe the impact of court cases on other exposures identified.We agreed payments madeto bank statements.
An overview of the scope of our audit Our Group audit was scoped obtaining by an understanding the of Group and its environment, including group-wide controls and assessing the risks material of misstatement across the Group. Our audit scope focused primarily on the seven key operating segments Khakanja, (Voro, Dukat, Omolon, Varvara, Amursk-Albazino and Mayskoye) plus the Head Office entity The Group audit team was involved in the work the of component auditors at all stages the of The audit signing process. partner and senior members the of Group engagement team visited the head officesPetersburg in St. several times in the pastyear as well as differences below that threshold in that, warranted our view, reporting on qualitative grounds. also We report the to Audit Committee on disclosure matters that identified we when assessing theoverall presentationof the financial statements. such that 100% revenues of and over 99% assets total of were subject a full to scope audit. and have also visited at least one the business of key units, at least since once our a year, appointment as external auditors. We agreedWe with the Audit Committee that would we report the Committee to all audit differencesin excess US$320,000, of We determinedWe materiality for the group be US$16 to million, which is adjusted of 5.6% pre-tax profit, and lessof 1% equity. than Pre-tax profit is adjustedfor the materiality calculationexcludeto one-off impairments, write-downs and netforeign exchange year. year on calculation materiality the distort significantly included, if would, which recognised losses Our application of materiality of application Our defineWe materiality as the magnitudeof misstatement in the financial statements that makes itprobable that the economic decisions a reasonably of knowledgeable person would be changed or influenced.We use materiality both in planning the scope ourof audit work and in evaluating the results our of work. Our audit work was executed at levels materiality of applicable each to individual component; which were lower than with respect any the of to risks described above, and do we not express an opinion on these individual matters. The Group audit team directed and reviewed in detail the work performed on significant risksby the component auditors. materiality. group Our audit procedures relating these to matters were designed in the context our of audit the of financial statements as a whole, and express not to an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified The Audit Committee’s consideration these of risks is set out on page 83. in ore stockpiles and work in progress involves the use models. theoretical and techniques sampling of The assessment of the recoverability of metal inventories requires judgement both in terms of calculating the expected costs process to and refine ore stock pilesto produce concentrate or doré for sale, and in terms of estimating future gold, silver or copper prices be to realised on sale. December 31 At the group held 2013 US$438million in respect Sheet. Balance the on inventories metal of Existence and valuation of metal inventories levels metal contained the of determination Management’s Risk Provisioning and disclosure in respect of income tax and mineral extraction tax liabilities varying to subject is Kazakh and Russian tax legislation applied as interpretation management’s and interpretations theto transactions and activity of the Group may be challenged authorities. federal and regional relevant the by probable, is exposure potential a whether of determination The judgement. significant requires remote or possible Financial statements Financial Independent report auditor’s to the members of Polymetal International plc continued Annual Report 2013 Polymetal International plc Financial statements 106/107 1
(134) 2012 (1,565) 14,811 14,481 31,044 18,622 58,024 29,822 (72,119 ) 98,864 restated ( 65,128 ) (63,021) (53,261) (25,276) (82,760) 115,106 103,192 119,291 107,596 509,718 US$’000 840,621 (244,211) (619,612) (312,218) (792,910) ( 693,134) 2,151,871 2,151,871 1,115,556 1,576,123 3,6 37,915 2,205,732 2,522,359 (1,486,044) 31 December 31 (97) 2013 (212) 8,433 18,170 53,142 85,135 15,651 44,526 65,567 30,889 22,853 88,484 (37,174) (81,331) (65,152) (15,523) 727,144 (63,085) (56,885) US$’000 143,524 186,632 948,975 (117,974) (293,576) (206,836) 1,664,170 1,787,490 1,787,490 2,094,742 2,305,761 3,254,736 (1,173,670) (1,467,246) (1,029,813) 31 December 31 19 16 16 24 21 27 25 27 28 23 23 26 26 20 22 32 30 Notes Bobby Godsell Chairman of the Board of Directors BoardChairman the of of
Restated following adopting IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. Refer to Note 35. Deferred tax asset inventories Non-current Total non-current assets Total Current inventories Current Income tax prepaid Investments in associates in Investments receivables and loans Non-current Goodwill receivable VAT Current andTrade other receivables Prepayments suppliers to 1 form part these of financial 151 to These statements. financialThe notes on pages statements 110 are approved and authorised for issue the by Board Directors of and signed on 30 March on its behalf 2014 by: Vitaly Nesis Executive Chief Assets Property, plant and equipment 30 March 2014 Consolidated balance sheet balance Consolidated Current borrowings Current Total assets Total equity shareholders’ and Liabilities liabilities accrued and payable Accounts Cash and cash equivalents cash and Cash assets current Total Income tax payable Other taxes payable Environmental obligations Environmental Total current liabilities Total borrowings Non-current Deferred taxDeferred liability obligations Environmental Contingent consideration liability consideration Contingent Other non-current liabilities non-current Other Total non-current liabilities Total Stated capital account capital Stated reserve compensation Share-based reserve Translation NET ASSETS NET earningsRetained Total equity Total Total liabilities Total
1 1 – – – US$ 1.10 1.10 2012 2012 2012 7,027 6,677 4,657 (4,717) 17,149 (1,804) (4,000) 21,051 restated restated (10,709) (26,787) 111,656 421,196 119,034 651,091 191,603 US$’000 US$’000 US$’000 US$’000 522,730 660,919 539,879 539,879 428,223 428,223 428,223 998,226 (181,648) (153,855) (851,839) (222,868) 1,854,065 31 December 31 31 December 31 December 31 2012 restated 2012 – – – – US$ Year ended Year ended 2013 2013 2013 Year ended 2013 (0.51) (0.51) 8,131 3,879 2,850 (8,746) 31,158 (2,340) (40,417) (12,291) (74,240) (42,735) (42,880) (88,486) 429,474 US$’000 US$’000 US$’000 US$’000 (157,620 ) (168,132) (201,105) (351,612) (351,612) (351,612) (153,575) (153,327) (198,037) (198,037) (198,037) (198,037) 1,706,597 (1,123,796) 31 December 31 31 December 31 31 December 31 – 4 6 7 11 12 15 18 18 16 31 21 21 23 32 32 50 30 2012 Notes share Cents per Cents – 8 1 2013 share Cents per Cents 2
Restated following adopting IFRIC 20 Stripping Costs Stripping 20 in IFRIC the Production adopting following Restated Phase of a Surface Mine. Refer to Note 35. Statement. Income the to reclassified subsequently be May Diluted interest Non-controlling Total comprehensive (loss)/incomeyear comprehensive financial the for Total Impairment of investment in associate Share of loss of associates and joint ventures 1 2 Total comprehensiveTotal (loss)/income for the financial year attributable to: Parent the of Shareholders Equity (Loss)/Profit for the financial year Impairment of non-current assets non-current of Impairment Operating (loss)/profit subsidiaries of disposal on Loss Gain on acquisition of remaining interest injoint venture Other comprehensive (loss)/income currency presentation to translation of Effect Basic Cost of sales value realisable net to inventories metal of Write-downs profit Gross General, administrative and selling expenses expenses operating Other Revenue Special dividend declared (Note 17) (Note declared dividend Special Final dividend proposed (Note 17) (Note dividendFinal proposed Net foreign exchange (losses)/gains Interim dividend (Note 17) Finance incomeFinance costs Finance (Loss)/Profit before income tax Income tax expense (Loss)/Profit for the year attributable to: Equity shareholders of the Parent interest Non-controlling Change in fair value of contingent consideration liability consideration contingent of value fair in Change (Loss)/Earnings share per (Loss)/Profit for the financial year Consolidated statement of comprehensive income Financial statements Financial Consolidated income statement Annual Report 2013 Polymetal International plc Financial statements 108/109 – 9,737 1,258 74,624 13,423 24,233 54,279 539,879 (351,612) (125,049) ( 267,8 8 0 ) 2,151,871 1,787,490 Total equity Total 1,814,598 – – – – – – – – – – 764 Non- 17,149 interest 148,484 (166,397) controlling Total equity 9,737 1,258 74,624 53,515 13,423 24,233 522,730 166,397 (351,612) (125,049) ( 267,8 8 0 ) 1,666,114 2,151,871 1,787,490 attributable to theto parent – – – – – 1,258 earnings 421,197 Retained 509,718 753,572 186,632 (198,037) (125,049) ( 267,8 8 0 ) (398,429) – – – – – – – – – – – – Share 561,659 purchase obligation (561,659) – – – – – – – – (3,765) reserve (53,261) 101,533 (153,575) (206,836) (151,029) Translation – – – – – – – – – – – – 395 (395) in JSC shares Treasury Polymetal – – – – – – – – 6,537 reserve 53,515 24,233 59,239 119,291 143,524 Share-based compensation – – – – – – – – 9,737 Stated capital 74,624 13,423 account 1,576,123 1,664,170 1,566,386 – – – – – – – – shares Number 520,422 775,000 5,491,661 outstanding International of Polymetal of 389,472,865 382,685,782 383,206,204 4 4 17 33 Notes
1
December December December Restated following adopting IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. Refer to Note 35. Issue of shares in exchange for assets Acquisition of of Acquisition non-controlling under interest and MTO Squeeze-out Share based based Share compensation Dividends Balance at at Balance 31 2012 restated 2012 Balance at at Balance 31 2013 Total comprehensive income Amortisation bonus of from received depositary 1 Balance at at Balance January 1 2012 Total comprehensive income Share based based Share compensation Dividends Consolidated statement of changes in equity Issue of shares in exchange for assets Issue of shares in exchange business for acquisitions 1 2012 5,686 (1,227) (4,559) 16,211 18,622 25,000 restated (20,797) (76,537) (10,000) US$’000 658,795 540,840 ( 3 97,076 ) (794,251) (402,973) (568,837) (656,384) 1,236,036 (1,384,913) 31 December 31 – –
Year ended 2013 1,965 (1,329) (3,681) 18,622 13,320 10,000 33,625 65,567 (11,934) US$’000 461,667 (103,615) (316,429) (324,427) (319,448) 3,099,855 (2,887,041) 31 December 31 4 17 19 21 25 25 26 26 36 30 Notes Restated following adopting IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. Refer to Note 35. Effect of foreign exchange rate changes Net cash used in financing activities financing in cash used Net equivalents cash increase/(decrease) and cash Net in Cash and cash equivalents at 1 January Cash and cash equivalents at December 31 of US$9.0of million) were on deferred payment terms with $nil cash received in the current year. 1 Sales property, of plant and million for equipment consideration (resulting in2013 US$11.3 of in a loss on disposal Cash flows from investing activities investing from flows Cash Purchases of property, plant and equipment acquisitions for Consideration Gold Polygon to) by/(advanced repaid loan Convertible activities investing Other Dividends paid Net cash generated by operating activities operating cash generated by Net Proceeds from disposal of subsidiary of disposal from Proceeds Interest received Repayments of borrowings MTO and squeeze-out obligation repayment Contingent consideration paid consideration Contingent activities investing in cash used Net activities financing from flows Cash obtained Borrowings Financial statements Financial Consolidated statement of cash flows Annual Report 2013 Polymetal International plc Financial statements 110 /111
.
– Non-monetary Consolidated and Separate Financial Statements replaces Financial Separate the and portion Consolidated IAS of 27 replaces Jointly-controlled Interests Entities IAS 31 in Joint Ventures and SIC-13 . Under IFRS 11 a joint arrangement. Under IFRS 11 is classified as either a joint operation or a jointventure, and New andamended standards adopted the by entity IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine the IASB issued IFRIC Stripping 20 In October Costs in 2011, the Production Phase a Surface of Mine. IFRIC provides 20 guidance on the accounting for the costs stripping of activities during the production phase a mine. of When the benefit from the stripping activity is the improved access a component to the of ore body in future periods, the stripping costs in excess theof average waste ratio ore to for the life mine of that of 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 the of identified componentof the ore body made accessible a as resultof the stripping activity. The Group has adopted IFRIC retrospectively 20 according the transitional to results provisions, have been and the 2012 restated accordingly. Prior adoption accounting to IFRIC theof Group’s 20, policy expense was to all the production stripping costs as incurred therefore there at 1 January were no deferred 2012 stripping assets balance on the Group’s sheet, and no restatement was required atthat date. The adoption IFRIC of has 20 resulted in capitalisation certain of waste stripping costs within property, plant and equipment and a reduction in cost sales of and metal inventories in the year For further ended December 31 detail 2012. the of effect on the Group financial statements theyear please31 Decemberended 35. refer Note to 2012 Amendments 1 Presentation to IAS of Items of Other Comprehensive Income The amendments IAS 1 impact to statement the Group’s comprehensive of income requiring by the grouping items of presented in othercomprehensive income based on whether or not they will bereclassified to profit or loss in future. Adoption the of amendment did not impact earnings per share. Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities The amendments IFRS 7 require to entities disclose to information about rights offset of and related agreements for financial instruments under an enforceable master netting agreement or similar arrangements. Fair ValueIFRS 13 Measurement establishesIFRS 13 a single framework for measuring fair value when such measurements are required or permitted by other standards. Theother by application standards. has not materially IFRS of 13 affected the fair value measurements carried out the by alsoGroup. requires IFRS 13 specific disclosures on fairvalues, someof which replaceexisting disclosure requirements in other standards, including IFRS 7 Financial Instruments:The Disclosures. additional disclosure requirements are reflected within the relevant the notes financial to statements. estimates accounting Changes in the 1 JanuaryFrom Group beganuse to 2013, JORC as opposed GKZ to reserves as the basis for the unit-of-production depreciation calculations as management believes this revised basis better reflects the long-term mine plans which are also being prepared based on JORC reservesThe impact estimates. on the depreciation total charge for the year ended December was an increase31 US$40 of 2013 million. Standards and Interpretations in issue not yet adopted The following amended new, or revised IFRS accounting standards and interpretations not yet adopted are not expected to have a significant impact on the Group: the on impact significant a have to Statements Financial Consolidated IFRS 10 providesIFRS 10 a single basis for consolidation with a new definitionThe standardof control. appliesto annual periods beginning on or after for companies 1 January reporting 2014 under IFRS as adopted the by EU. Joint ArrangementsIFRS 11 Contributions Venturers by the option proportionately to consolidate joint ventures has been removed. Interestsin joint ventures must be equity accounted. This standard applies annual to periods beginning on or after for companies 1 January reporting 2014 under IFRS as adopted theby EU. that addresses accounting for consolidated Special Entities – Purpose financial Consolidation statements and SIC-12
100 100 100 100 100 100 100 100 2012
31 December 31 100 100 100 100 100 100 100 100 2013 by JSC Polymetal, % Effective interest held 31 December 31 Russia Russia Russia Russia Russia Russia Russia Country of incorporation Kazakhstan NA Dukat Tsokol Arylakh Kubaka Deposits Danleye Lunnoye Albazino Ozernoye Mayskoye Avlayakan Birkachan Goltsovoye Yurievskoye Varvarinskoye Vorontsovskoye Khakandjinskoye Sopka Kvartsevaya 2013. 2013. December Albazino Resources Ltd LLC Plant Hydrometallurgical Amursk JSC Varvarinskoye CJSC Magadan Silver Mayskoye Gold Mining Company LLC LLC Company Mining Gold Omolon Name of subsidiary of Name Basis of presentationBasis of annualThe Group’s consolidated financial statementsfor theyear December31 ended are prepared in accordance 2013 The accounting policies set out in 2 have been Note applied in preparing the consolidated financial statementsfor theyear 31 ended of US$1,045 million, million US$1,045 of with undrawn of US$1,324 but committed facilities available subject the Net to debt/Adjusted EBITDA compliance. covenant The Board is satisfiedforecasts that the Group’s and projections, having taken accountof reasonably possible changes in trading performance, show that the Group has adequate resources continue to in operational existence for at least months the next 12 from the this date of report and that it is appropriate adopt to the going concern basis in preparing the consolidated financial statements for the year ended December 31 2013. with International Financial Reporting Standards (IFRS) as adopted theThe by European financial Union. statements have been prepared on the historical cost basis, except for certain financial instruments and share-based payments which are measured at fair value. capital expenditure commitments and plans. theDecember Group As at 31 held US$66 2013, million cash of and had net debt Going concern Going In assessing its going concern status, the Group has taken account its of financial position, anticipated future trading performance, its borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings and its Significant subsidiaries the December Company 31 At held an 2013, effective 100% interest in JSC Polymetal, an entity incorporated in Russia. 2010 as a publicon July 29 limited 2010 company under Companies Its shares (Jersey) are traded on the Law London 1991. exchanges. stock Moscow and subsidiaries: production and mining significant following the held Company the subsidiary, this Through CJSC Gold of Northern Urals of Gold CJSC Polymetal International plc (the Company) is the ultimate parent entityThe Polymetal of Company was Group. incorporated 1. General 1. information Corporate Polymetal Group is a leading gold and silver mining operating group, in Russia and Kazakhstan. LLC Okhotskaya Mining and Exploration Company Exploration and Mining Okhotskaya LLC Financial statements Financial Notes to the consolidatedfinancial statements Annual Report 2013 Polymetal International plc Financial statements 112/113
, respectively; rovisions, Contingent Liabilities and Contingent Liabilities Contingent and Contingent rovisions, with the corresponding amount being recognised being amount corresponding the with Employee Benefits Employee and IAS 19 at the acquisition date; and date; acquisition the at are measured in accordance with that Standard. or IAS 39 Financial Instruments Recognition and Measurement deferred tax assets or liabilities and liabilities or assets related employee to benefit arrangements are recognised in accordance with IFRS 2 Share-based Payment and measured in accordance Income with IAS 12 Taxes liabilities or equity instruments related share-based to payment arrangements the of acquiree or share-based payment arrangements the of Group entered replace to into share-based payment arrangements the of acquiree are measured assets (or disposal groups) that are classified as heldfor sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations in profit or loss. The identifiable assets acquired and the liabilities assumed are recognised at their fairvalue at the acquisitionexcept that: 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-datefair value and included as part the of consideration transferred in a business combination. Subsequent changes in such fair values are adjusted against the cost acquisition of adjustments. period qualify measurement as they where goodwill against adjustment corresponding the with retrospectively measurement the during obtained information additional from arise that adjustments are adjustments period Measurement period about factsand circumstances that existedThe at the acquisition measurement date. period may not exceed one year from the effectiveThe the date of acquisition. subsequent accounting for contingent consideration that does not qualify consideration Contingent classified. is consideration contingent the how on based is adjustment period measurement a as for 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 P IAS 37 Assets • Where a business combination is achieved in stages, previously the Group’s held interests in the acquired entity are remeasured fairto value at the acquisition the (i.e. date date the Group attains control) and the resulting gain is or recognised loss, if any, in the consolidated income statement. Amounts arising from interests in the acquiree prior the acquisition to date that have previously been recognised in equity are reclassifiedto profit or loss, where such treatment would be appropriate if that interest of. disposed was 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 the of sum the of consideration transferred, the amount any of non-controlling interests in the acquiree, and the fair value the of acquirer’s previously held equity interest in the acquiree (if any) over the net the of assumed. liabilities the and acquired assets identifiable the of amounts acquisition-date interestIf the in Group’s the fair value the of identifiable acquiree’s net assetsexceeds the sumof the consideration transferred, the amount any of non-controlling interests in the acquiree and the fair value the of 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 impairment of testing, goodwill is allocated cash-generating each to the of Group’s units expected benefit to from the synergiesof the combination. Cash- generating units which to 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 the of cash-generating unit is less than its carrying amount, the impairment loss is allocated firstto reduce the carrying amountof any goodwill allocatedto the unit and thento theother assets the of unit pro-rata on the basis the of carrying amount each of asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal a subsidiary, of the attributable goodwill is included in the determination the of profit or loss on disposal. licences mining of Acquisition The acquisition mining of licences is ofteneffected through a non-operating corporate entity. As these entities do not represent a business, it is considered that the transactions do not meet the definitionof a business combination and, accordingly, the transaction is accounted for as the acquisitionThe net assets an of asset. acquired are accounted for at cost. Investments in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence constitutes the topower participate in the financial and operating policy decisions of theinvestee but does not extend a control to or joint control over the enactment thoseThe of policies. results and assets and liabilities associatesof are incorporated in the consolidated financial statements using the equity methodof accounting.
and it has been reissued and it has been reissued as Investments IAS 28 – Presentation is effective for annual periods beginning on or afterJanuary 1 2014. . The revised standard. prescribes the accounting and disclosure requirements , as well as including additional disclosureThis requirements. standard applies annual to . The revised standard. prescribes the application the of equity method when accounting applies a transaction to or other event that meets the definitionof a business combination. Consolidated and Separate Financial Statements Amendments Financial Separate and have been Consolidated made IAS 27 to Amendments have been made Investments IAS 28 to inAssociates Business combinations IFRS Combinations 3 Business periods beginning on or after for companies 1 January reporting 2014 under IFRS as adopted the by EU. Statements Financial Separate as IAS 27 for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. The accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates in consolidated The revisedfinancial standardto 12. be is statementsapplied11 and IFRS are for prescribed annual IFRS10, by IFRS periods beginning on or after for companies 1 January reporting 2014 under IFRS as adopted the by EU. theof fair values net of assets recognisedThereafter, at acquisition. a share the of profit or lossfor the financial year otherand movements in the net assets or liabilities the of subsidiary is attributed the non-controlling to interests as shown in the income statement and balance sheet. When acquiring new entities or assets, the Group applies judgement assess to whether the assets acquired and liabilities assumed constitute an integrated set activities, of whether the integrated set is capable being of conducted and managed as a business a market by participant, and thus whether the transaction constitutes a business combination, using for the consideration The guidance method. acquisition the using for accounted are businesses of Acquisitions standard. the in provided each acquisition is measured at the aggregate the of fair values (at the exchange) date of assets of given, liabilities incurred continued continued General 1. DisclosuresIFRS 12 This of Interests standard in Other combines Entities will the disclosure accompany and IFRS IFRS 11. 10 requirements related consolidated to previously financial covered IAS by 27, statements,31 Interest IAS in Joint Ventures and When necessary, adjustments are made the financial to statementsof subsidiariesto bring their accounting policies When the Group loses control a subsidiary, of the profit or loss on the disposal is calculated as the difference between Amendments Instruments IAS Financial 32 to Income and expenses subsidiaries of acquired or disposed during of the period are included in the consolidated income statement from the effective acquisition date of and the up effective to disposal, date of as appropriate. All intra-group balances, transactions and any unrealised profits or losses arising from intra-group transactions are eliminated Changes ownership the Group’s to interests that do not result in a loss control of over the subsidiaries are accounted for as equityThe transactions. carrying amount interests the of and Group’s non-controlling interests are adjusted reflect to the change in their relative interests in the subsidiaries. Any difference between the amount which by the non-controlling interest is adjusted and the fair value the of consideration paid or received is recognised directly in equity and attributed the owners to the of Parent. For non-wholly owned subsidiaries, non-controlling interests are initially measured at the non-controlling proportion interest’s IAS 28 InvestmentsIAS 28 in Associates in Associates and Joint Ventures for investments in associatesThe and joint revised ventures. standard be is applied to for annual periods beginning on or after for companies 1 January reporting 2014 under IFRS as adopted theby EU. 2. Significantaccounting policies consolidation Basis of Subsidiaries The consolidated financial statementsof the Group include the financial statements of the its subsidiariesCompany, and, if applicable, special purpose entities, from the date that control effectively commenced until the date that control effectively ceased. Controlis achieved where the Company has the power govern to the financial and operating policiesof an entity so obtain as to benefits from its activities. lineinto with those used other by members the of Group. consolidation. on the aggregated1) fair value the of consideration received and the fair value any of retained interest and 2) the previous carrying amount the of assets (including goodwill), and liabilities the of subsidiary and non-controlling interests. or assumed, and equity instruments issued the by Group in exchange for control the of acquiree. Acquisition-related costs are recognised in the consolidated income statementTransaction costs as incurred incurred. in connection with the business combination are expensed. Provisional fair values are finalised12 months of the within acquisition date. Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 114/115
2012
30.37 30.09
149.11 150.74
31 December 31
2013 31.85 32.73 152.14 153.61 31 December 31 Up to 20 years 20 Up to years 10 Up to Kazakh Tenge/US Dollar end Year Average for the year Exchange rates used in the preparation the of consolidated financial statementswere follows:as Average for the year Russian Rouble/US Dollar end Year The Russian Rouble and Kazakh are not freely Tenge convertible currencies outside the Russian Federation and Kazakhstan and, accordingly, any translation Russian of Rouble and Kazakh denominated Tenge assets and liabilities US into Dollar for the purposethe of presentation consolidated of financial statements does not imply that the Group could or will in the future realise or settle in US Dollars the translated values these of assets and liabilities. currency transactionsForeign Transactions in currencies other than the entity’s functional currencies (foreign currencies) are recorded at the exchange rates prevailing on the dates the of transactions. All monetary assets and liabilities denominated in foreign currencies are translated prevailingrate on the date on which the most recent fair value was determined. Exchange differences arising from changes when the assets are ready for their intended use. Mineral exploration and evaluation costs, including geophysical, topographical, geological and similar types costs, of are capitalised if management concludes that future economic benefits are likely theof ore body in future periods, the stripping costs in excess the of average waste ratio ore to for the life mine of that of 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 the of identified componentof the ore at the exchange rates prevailing at the reporting Non date. monetary items carried at historical cost are translated at the exchange prevailing rate on the transaction. date of Non-monetary items carried at fair value are translated at the exchange in exchange rates are recognised in the consolidated income statement. Property, equipment and plant assets Mining Mining assets and leases include the cost acquiring of and developing mining assets and mineral rights. Mining assets are reserves ore according probable and proven on based method unit-of-production the using values residual their to depreciated the JORCto Code, which is the basis on which mine plans the Group’s are prepared. Changes in proven and probable reserves are dealtwith prospectively. Depreciation is charged on new mining ventures from the date that the mining asset is capable commercialof production. In respect those of mining assets whose useful lives are expected be less to than the life the of mine, depreciation over the period the of useful asset’s life is applied. commences Depreciation impairment. recognised any less cost at measured are assets construction-in-progress Capital be realisedto anddetermines that economically viable extraction operation can be established as a result exploration of activities and internal assessment mineral of resources. Non-mining assets are depreciated their to residual values on a straight-line basis over their estimated useful lives. When parts anof item property, of plant and equipment are considered have different to 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 Transportation and other assets Assets held under finance leases are depreciatedover the shorterof the leaseterm and the estimated useful livesof the assets. disposal from proceeds the comparing by determined are equipment and plant property, of disposal on losses or Gains with the carrying asset’s The gain amount or loss at the arising date. is recognised in the consolidated income statement. costs Stripping When it has been determined that a mining asset can be economically developed as a result established of proven and probable reserves, the costs remove to any overburden and other waste materials initially to expose referred the ore body, as stripping to costs, are capitalised as a part mining of assets. During the production phase a mine of when the benefit from the stripping activity is the improved accessto a component body made accessible as a result the of stripping activity.
to the Group’s presentation the Group’s to currency within the reserve; Translation and in the consolidated statement cash of flows, cash balances at the beginning and endof each reporting period presented all assets and liabilities are translated at closing exchangerates 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 such date of transactions; resulting exchange differences are included in equity and presented as movements relating the effect to translation of 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 transaction.of • continued 2. Significant continued accounting policies accounting Equity of method Under the equity method,an investment in an associate or jointly controlled entity (investee) is initially recognised in the consolidated balance sheet at cost and adjusted thereafter recognise to share the the of profit Group’s or loss andother comprehensive income the of investee. When share the the of losses Group’s an of associate exceeds interest the Group’s Functional and presentation and currencyFunctional The functional currency for each entity in the Group is determined as the currency the of primary economic environment The Group has chosen present to its consolidated financial statements in US Dollars (US$), as management believes in that the entity, Group ceases recognise to its share further of losses. Additional losses arerecognised only the extent to investments. the Group’s to Where an indicator impairment of exists or the carrying value the of asset contains goodwill with the Group.to in which it operates. For all Russian entities the functional currency is the Russian Rouble (RUB), as well as for the investment holding companies, including PolymetalThe International functional plc. currency entity the of Group’s located in Kazakhstan (JSC Varvarinskoye) and operating with significant degreeof autonomy is the KazakhTenge (KZT). it is a more convenient presentation currency for international users theof consolidated financial statements theof Group as it is a common presentation currencyThe in the mining translation industry. the of financial statementsof the Group entities from their functional currencies the presentation to currency is performed as follows: • • • On the disposal a foreign of operation a disposal (i.e. entire interest the of Group’s in a foreign operation, or a disposal involving loss control of over a subsidiary that includes a foreign operation, a disposal involving loss joint of control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss significant of influenceover an associate that includes Any excess the of cost acquisition of share over the the of net Group’s fair value the of identifiable assets, liabilities and contingent liabilities an of investee at the acquisition date of is recognised as goodwill, which is included within the carrying amount the of investment. Any share excess the the of of net Group’s fair value the of identifiable assets, liabilities and The requirements IAS of 39 are applied determine to whether it is necessary recognise to any impairment loss with respect When a Group entity transacts with its investees, profits and losses resulting from the transactions with the investee are recognised consolidated in the Group’s financial statements onlyto theextent of interests in the associate that are relatednot In the case a partial of disposal that does not result in the Group losing control over a subsidiary that includes a foreign operation, the proportionate share accumulated of exchange differences are re-attributed non-controlling to interests and are not recognised in the consolidated income statement. For all other partial disposals reductions (i.e. ownership in the Group’s interest in associates or jointly controlled entities that do not result in the Group losing significant influence or joint control), theproportionate share Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisitionforeignof a operation are treated as assets and liabilities the of foreign operation and translated at the exchange of rate prevailing at the end each of equity. in recognised differences Exchange are reporting period. arising that the Group has incurred legal or constructive obligations or madepayments on behalf the of investee. contingent liabilities over the cost acquisition, of after reassessment, is recognised immediately in profit or loss. an indefinite useful thelife, entire carrying amountof the investment (including goodwill)tested is for impairment in accordance with IAS 36 Impairment of Assets (IAS 36) as a single cash generating unit through the comparison its of recoverable amount (the higher value of in use and fair value less costs sell) to with its carrying amount. Any impairment loss recognised forms part the of carrying amount the of investment. Any reversal that of impairment loss is recognised in accordance with IAS 36. a foreign operation), all the of exchange differences accumulated in equity in respect that of operation attributable the ownersto the of Company are reclassifiedto profit or loss. statement. income consolidated the to reclassified differences is exchange accumulated the of Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 116 /117
permits the entire combined contract (asset or liability) be designated to as at FVTPL. such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise would that inconsistency recognition or a measurement reduces significantly or eliminates designation such arise; or the financial instrumentforms partof a groupof financial assets or financial liabilities or both, which is managedand its performance is evaluated ona fair value basis, in accordance documentedwith the Group’s risk management or investment and informationstrategy, about the grouping is provided internally on that basis; or it forms part a contract of containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement significant financial difficulty of the issuer or counterparty; or or issuer the difficulty of financial significant breach contract, of such as a default or delinquency in interest or principal payments; or or re-organisation; financial or bankruptcy enter will borrower the that probable becoming it the disappearance an of active market for that financial asset becauseof financial difficulties. Financial instrumentsFinancial Financial assets and financial liabilities are recognised when a group entity becomes a partyto the contractual provisions theof instrument. Financial assets and financial liabilities are initiallyTransaction measured costs that at fairare directlyvalue. attributable to the acquisitionto or issue financial of assets and financial liabilities(other than financial assets and financial liabilities at fair value through profit or loss) are addedto or deducted from the fairvalue of the financial assets or financial liabilities, as appropriate, on initialTransaction costs recognition. directly attributable the acquisition to financial of 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 instrumentother than a financial instrument held for tradingmay be designated as at FVTPL upon initial recognition if: • • • or payments (including all fees and points paid or received that form an integral part the of effective interest transaction rate, costs and other premiums or discounts) through the expected life the of financial instrument,where appropriate, or, a shorter period, the net to carrying amount on initial recognition. assetsFinancial (AFS) forfinancial sale categories: available specified following FVTPL, the into classified are assets financial Non-derivative assetsThe classification and ‘loans and receivables’. depends on the nature and purposeof the financial assets and or loss. Fair value is determined in the manner described in 30. Note methodEffective rate interest The effective interest method rate is a method calculating of the amortised cost a financial of instrument andof allocating interest income or expense over theThe relevant effective period. interest is rate the that rate discounts estimated future cash receipts is determined at the time initial of recognition. No financial instruments have been classifiedavailable as for sale. Income is recognised on an effective interest basis for financial instrumentsother than those financial assets classified as at FVTPL. receivables and Loans Loans and receivables are non-derivative financial assets with fixed or determinablepayments that arenot quoted in an active market. Loans and receivables are measured at amortised cost using the effective interest method, rate less any impairment. Interest income is determined applying by the effective interest except for rate, short-term receivables when the recognition interestof would be immaterial. financial assetsAFS Investments other than those classified as heldfor trading, held-to-maturity or loans and receivables are classifiedavailable as for sale financial These assetsassets. are subsequently measured at fairvalue and unrealised gains and losses are recognised in equity until the investment is disposed or impaired, at which time the cumulative gain or loss previously recognised in equity statement. income consolidated the included in is financial assets of Impairment Financial assets, other than those at FVTPL, are assessed for indicators impairment of at the end each of reporting period. Financial assets are considered be impaired to when there is objective evidence as that, a result one of ormore events that occurred after the initial recognition the of financial asset, the estimated future cash of flows theinvestment have been affected. For equity investments classified as a significantAFS, orprolonged decline in the fair value of the security below its cost is considered be objective to evidence impairment. of For all other financial assets objective evidenceof impairment could include: • • • • Financial instruments at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit
Consumables and spare parts Consumables and spare partsare stated at the lower cost of or net realisable value. Cost is determined on the weighted average The portionmoving cost. consumables of and spare parts not reasonably expected be used to within one year is classified Net realisable value represents the estimated selling price for that product based on prevailing spot metal prices, less estimated costs complete to production and selling costs. cost mining of that ore. Where ore stock piles are not expected be processed to months, within those inventories 12 are non-current. as classified as a long-term asset consolidated in the Group’s balance sheet. Net realisable value represents the estimated selling price less all estimated costs completion of and costs be incurred to in marketing, selling and distribution. at the average cost total production of per saleable unit metal. of Workin-process, metal concentrate and doré are valued at the average production total costs at each relevant asset’s stage production. of Ore stock piles are valued at the average of productionof cost or net realisable value. Production cost is determined as the sum the of applicable expenditures and expenses incurred directly or indirectly in bringing inventories their to existing condition and location. Refined metals arevalued Inventories Metal inventories Inventories including refined metals, metals in concentrate and in process, doré and ore stock piles are stated at the lower Where an impairment loss subsequently reverses, thecarrying amount the of asset (or cash-generating unit) is increased A reversal an of impairment loss is recognised in the consolidated incomestatement immediately. If the recoverable amount an of asset (or cash generating unit) is estimated be less to than its carrying amount, the carrying amount the of asset (or cash generating unit) is reduced its recoverable to amount. An impairment loss is recognised statement. income consolidated the in immediately expense an as the revisedto estimate its of recoverable amount, but only the extent to that the increased carrying amount does not exceed periods. prior in been recognised loss impairment no had been determined have would carrying original that the amount Recoverable amount is the higher fair of value less costs sell to and value in use. In assessing value in use, the estimated future cash flows are discountedto their presentvalue using a pre-tax discount that rate reflects current market assessments of the time value money of and the risks specificto the assetfor which the estimatesof future cash flowshavenot been adjusted. the asset belongs. belongs. asset the continued 2. Significant continued accounting policies Estimated ore reserves Estimated proven and probable ore reserves reflect the economically recoverable quantities which can be legally Operating leases Operating lease payments are recognised as an expense on a straight-line basis over the lease term. Contingent rentals Leases leasesFinance Leases under which the Group assumes substantially all the risks and rewards ownership of are classified as finance leases. Assets subject finance to leases are capitalised as property, plant and equipment at the lowerof fairvalue or presentvalue Finance lease payments are calculated using the effective interest method, rate and allocated between the lease finance cost, which is included in finance cost, and the capital repayment, which reduces the related lease liability payableto the lessor. property,Impairment equipment of and plant An impairment review property, of 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 the of asset is compared the estimated to recoverable amount the of asset in order determine to the extent the of impairment loss (if any). Where it is not possible estimate to the recoverable amount an of individual asset, the Group estimates the recoverable amount the of cash-generating unit which to recovered in the future from known mineral reservesThe Group’s deposits. are estimated in accordance with JORC Code. futureof minimum lease payments at the acquisition, of date with the related lease obligation recognised at the samevalue. Assets held under finance leases are depreciatedover their estimated economic useful lives overor term the of the lease, if shorter. If there is reasonable certainty that the lessee will obtain ownership the by end the of lease term, the period expectedof use is useful life the of asset. arising under operating leases are recognised as an expense in the period in which they are incurred. Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 118 /119
by theby development or ongoing production mining of assets. Such costs arising from the decommissioning plant of and other site preparation work, discounted their to netpresent value usingrisk-free a applicable rate the future to cash flows, are provided for and capitalised at the start each of project, as soon as the obligation incur to suchThese costs arises. costs are recognised in the consolidated income statement over the life the of operation, through the depreciation the of asset in the cost sales of line and the unwinding the of discount on the provision in the finance costs line. Costsfor restorationof subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and recognised in the progresses. extraction as statement income consolidated Changes in the measurement a liability of relating the decommissioning to plant of or other site preparation work (that result from changes in the estimated timing or amount the of cash flow or a change in the discount rate), are addedto or deducted from the cost the of related asset in the current period. If a decrease in theliability exceeds the carrying amount the of asset, the excess The amount recognised as a provision is the best estimate the of consideration required settle to the present obligation at the reporting taking date, accountinto the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimatedto settle the present obligation, its carrying amount is the presentvalue of those cash flows. Environmental obligations An obligation incur to environmental restoration, rehabilitation and decommissioning costs arises when disturbance is caused statement. income consolidated the in immediately recognised is The provision for closure cost obligations is remeasured at the end each of 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 cost to estimates and changes the risk to free interest rate. obligations benefit Employee Remuneration paid employees to in respect services of rendered during a reporting period is recognised as an expense in that reportingThe Group period. pays mandatory contributions the state social to funds, including the Pension Fund the of Russian Federation and Kazakhstan, which are expensed asincurred. Taxation Income tax expense represents the sum the of tax currently payable and deferred tax. Income taxes are computed in accordance with the laws countries of where the Group operates. taxCurrent The tax currently payable is based ontaxable Taxable profitprofitfor thediffers period. from profit as reported in the consolidated income statement because items of income of or expense that are taxable or deductible in other periods and items that are never taxable liabilityThe or deductible. Group’s for current tax is calculated using tax rates that have been enacted or substantively enacted the by reporting date. tax Deferred Deferred tax is recognised on temporary differences between the carrying amounts assets of and liabilities in the consolidated financial statements and the corresponding tax bases used in the computationof taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences the extent to that it is probable that taxable profits will availablebe 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) other of 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 control to the reversal the of 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 the extent to 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 reverseto in the foreseeable future. The carrying amount deferred of tax assets is reviewed at the end each of reporting period and reduced the extent to that it is no longer probable that sufficient taxable profits willavailable be to allow all or part of the toasset be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected apply to 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 the by end theof reportingThe measurement period. deferred of tax liabilities and assets reflects the tax consequences thatwould follow from the manner in which the Group expects, at the end the of reporting period, recover to or settle the carrying amount itsof assets and liabilities.
it transfers the financial asset and substantially all the risks and rewardsownership of of the assetto another If the entity. Group neither transfers nor retains substantially all the risks and rewards ownership of and continues control to the transferred asset, the Group recognises its retained interest in the asset and an associated liability for If the amounts Group it pay. may haveto retains substantially all the risks and rewards ownership of a transferred of financial asset, the Group continues to recognise Investment income earned on the temporary investment specific of borrowings pending theirexpenditure on qualifying assets Borrowing costs Borrowing costs directly attributable the acquisition,to construction or production qualifying of assets, which are assets that necessarily take a substantial period time of get ready to for their intended use or sale, are added the cost to those of assets, until such time as the assets are substantially ready for their intended use or sale. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result a past of event, it is probable that the Group will be required settle to the obligation, and a reliable estimate can be made the of amount the of obligation. Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related those to the of host contracts and the hybrid contracts are not measured at FVTPL. Cash cash and equivalents Cash and cash equivalents comprise cash balances, cash deposits and highly liquid investments with original maturities three of whichmonths are or readily fewer, convertible known to amounts cash of and are subject an insignificant to riskof changes value.in For financial assets measured at amortised in a subsequentcost, if, period, the amountof the impairment loss decreases and the decrease can be related objectively an event to occurring after the impairment was recognised, the previously recognised impairment loss is reversed through the consolidated income statement the extent to that the carrying amount the of investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment Derecognition financial assets of The Group derecognises a financial asset only when the contractual rightsto the cash flowsfrom the asset expire, or when liabilities Financial liabilities financial Other Other financial liabilities (including borrowings) are subsequently measured at amortised cost using the effective interest Derecognition financial liabilities of The Group derecognises financial liabilities when, and only obligationswhen, the Group’s are discharged, cancelled or they The differenceexpire. between the carrying amount the of financial liability derecognised and the consideration paid and financialinstruments Derivative The Group may enter a variety into derivative of financial instrumentsto manage exposureits to certain risks.Further details Derivatives are initially recognised at fair value at the date the derivative contracts are entered and into are subsequently remeasured their to fair value at the end each of reportingThe resulting period. gain or loss is recognised in the consolidated income statement immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing the of recognition in the consolidated income statement depends on the nature the of hedge relationship. All other borrowing costs are recognised in the consolidated income statement in the period in which they are incurred. of tradeof receivables, where the carrying amount is reduced through the use an of allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries amounts of previously written off are credited against the allowance account. Changes in the carrying amount the of allowance account are recognised in the statement. income consolidated recognised. been not the financial asset and also recognises a collateralised borrowingfor the proceeds received. rate method. statement. income consolidated the in recognised is payable derivativeof financial instruments are disclosed in 30. Note is deducted from the borrowing costs eligible for capitalisation. The carrying amount the of financial asset is reducedby the impairment loss directlyfor all financial assets exceptionwith the continued 2. Significant continued accounting policies For financial assets carried at amortised thecost, amount theof impairment loss recognised is the difference between the carryingasset’s amountand the present valueestimated of future cashflows, discounted at the financial originalasset’s effective interest rate. Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 120/121
applies a transaction to or other event that meets the definitionof a business combination. fair value net of assets acquired and liabilities assumed in business combinations; ore reserve estimates; depreciation; equipment; and plant property, other and assets mining goodwill, of impairment stock piles and work in-process; share-based compensation; environmental obligations; contingencies; and taxes. income the level capital of expenditure incurred compared the constructionto cost estimates; the completion a sufficient of testinglevelof on the mine plant and equipment; the ability produce to gold, silver or copper in saleable form (within specifications); and production. of levels commercial ongoing sustain ability to the When acquiring new entities or assets, the Group applies judgement assess to whether the assets acquired and liabilities assumed constitute an integrated set activities of and thus whether the transaction constitutes a business combination, using the guidanceprovided in the standard. In making thisdetermination, management evaluates the inputs, processes reserve development. April 2012. in production commercial achieved plant Merrill-Crowe Omolon The 2012. November in production commercial achieved POX Amursk The Mayskoye plant and underground mine reached commercial productionin April 2013. Acquisitions IFRS Combinations 3 Business and outputs the of asset or entityacquired. As a result this of evaluation process, management has acquisitions determined that its Olcha, of 2012 Semchenskoye and Svetlobor did not meet the definitionof a business combination and as such the Group has accountedfor these transactions 4). (see Note acquisitions asset as estimation uncertainty sources of Key Preparation the of consolidated financial statements in accordance with IFRS requires managementto make estimates and assumptions that affect the reported amounts assets of and liabilities and disclosure contingent of assets and liabilities at the thedate of consolidated financial statements, and the reported amountsof revenues andexpenses during the reporting period. The determination estimates of requires judgements which are based on historical experience, current and expected economic conditions, and all other available information. Actual results could differ from those estimates. The following are the assumptions key concerning the future, and other sources key estimation of uncertainty at the end theof reporting period that have a significant riskof causing a material adjustmentto the carrying amountsof assets and period. next financial the within liabilities The most significant areas requiring the useof management estimates and assumptionsto: relate • • • • • • • • • for capitalisable costs related to mining asset additions or improvements, underground mine development or ore ore or development mine underground improvements, or additions asset mining to related capitalisable costs for of certainof mine construction costs and interest ceases and costs are either regarded as inventory or expensed, except made in the process applying of accounting the Group’s policies and that have the most significant effect on the amounts statements. financial consolidated in recognised Production start date The Group assesses the stage each of mine or plant construction project determine to when an asset moves the into commercialThe production criteria stage. used assess to the start date are determined the by unique nature each of construction project and include factors such as the complexity a plant of and its location. The Group considers various relevant criteria assess to when the mine is substantially complete and ready for its intended use and moves the into production stage. Criteria considered but are not limited the following: to • • • • capitalisation the commences, depreciation and stage production commercial the into moves project construction a When 3. Critical accounting judgements and sources key of estimation uncertainty The following are the critical judgements, apart from those involving estimations (see below), that management has
to be usedto in purchasing the Company’s common shares at their average market price for the period. The fair value the of awards granted is recognised as a general, administrative and selling expense over the vesting period with Earnings per share Earnings per share calculations are based on the weighted average number common of shares outstanding during the period. Diluted earnings per share are calculated using the treasury stock method, whereby the proceeds from the potential exercise the two-stage Monte-Carlo simulationThe expense model. is recognised on a straight-line basis over the vesting period theof awards. No other share based payment awards were issued the by Group during the year ended December 31 2013. a corresponding increase in the share-based compensation reserve. Upon the exercise the of awards, the proceeds received, net any of directly attributable transaction costs, are credited the stated to capital account, and the amounts recognised within the share-based compensation reserve transferred retained to earnings. dilutiveof stock options with exercise prices that are below the average market price the of underlying shares are assumed The fair value equity-settled of share-based payments was calculated awarded the in by Group 2010 at the grant date using Share-based compensation Share-based The Group applies its accounting to IFRS 2 Share-based Payments for share-based compensation. IFRS 2 requires companies recogniseto compensation costs for share-based payments employees to based on the grant-date fair value the of award. Sales of copper, gold and silver concentrate The Group sells gold copper, and silver concentrate under pricing arrangements where final prices are determinedby quoted market prices in a period subsequent the sale. date of to Concentrate sales are initially recorded based on forward prices salesThe gold Group’s copper, of and silver concentrate are based on a provisional price and as such, contain an embedded derivative that is required be separated to from the host contract for accountingThe purposes. host contract is the receivable from the sale the of concentrate at the forward exchange priceThe embedded at the time sale. of 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 the final to settlement. been approved for export Russian by customs, they are then transported the vault to the of purchaser, which is typically located Title passesin London. and revenue is recognised at the point when the gold and/or silver bars are received the by purchaser. for the expected final date of settlement. Revenue is recorded at the timeof shipment, which is also when risks and rewards Revenuepass the buyer. to is calculated basedon gold the copper, and silver content in the concentrate and using the forward London Bullion Market Association (LMBA) or London Metal Exchange (LME) price the estimated to final pricing adjusted date, for the specificterms of the relevant agreement. Until final settlement occurs, adjustments to revenue are tomade take into account the changes in metal quantities upon receipt new of information and Revenue assay. is presented net refining of and treatment charges which are subtracted in calculating the amount be invoiced. to into Londoninto Good DeliveryThis Bars final prior sale.stage to of processing is carried outtoll-treatment on a basis fourat state-owned refineries. The Group sells gold and silver bullionto banks through long-term The agreements. sales price, as determined in the agreement, may be variable based upon the London Bullion Market Association (LBMA) spot price or fixed. policyBut theto is enterGroup’s not into fixed price contracts. For domestic sales, title passesfrom theGroup to the purchaser at the refinery gate with revenue recognised at that point.For export sales, once the gold and/or silver bars have Sale of gold and silver bullion The Group processes doré produced in the Russian Federation (at Dukat, Khakanja, Omolon, Voro, and Amursk-Albazino) Revenue from the sale gold of and silver bullion and sale gold copper, of and silver concentrate is recognised when the risks and rewards ownership of aretransferred the Group the buyer, to retains neither a continuing degree involvement of nor control over the goods sold, the amount revenue of can be measured reliably, and it is probable that the economic benefits associated with the transaction willto the flow Group. Revenue from the saleof gold and silver bullion represents the invoicedvalue of metal shipped net value of the buyer, added to tax (VAT). Revenue recognition Revenue Revenue is derived principally from the sale gold of and silver bullions andgold copper, and silver concentrate and is measured at the fair value consideration of received or receivable, after deducting discounts. for the business combination. business the for continued 2. Significant continued accounting policies Deferred tax assets and liabilities are offset when there is a legally enforceable right setoff to current tax assets against Current and deferred tax Current and deferred tax is recognised inthe consolidated income statement, except when they items relate to that are recognised in the consolidated statement comprehensive of incomeor directly in equity, in which case, thecurrent and deferred tax also recognised in consolidated statement comprehensive of income or directly in equity respectively. Where current current tax liabilities and when they income relate to taxes levied the by same taxation authority and the Group intends settleto its current tax assets and liabilities on a net basis. tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 122/123
on the Group’s estimateon the of the rights Group’s that will eventually vest. The fair value share-based of compensation was measured using the Monte-Carlo two-stage simulationThe expected model. life used in the model has been adjusted, based on management’s best estimate, for the effects non-transferability, of exercise restrictions and behavioral considerations.The awards include an option, exercisable at the discretion the of participant, deferto the measurement For further period June one details by to year 2014. from see 33. June Note 2013 all December optionsAs at 31 issued 2013, are fully vested and no unrecognised share-based compensation expense due the complexity to There legislation. of are many transactions and calculations for which the ultimate tax determination is uncertain.The Group recognises liabilities for anticipated tax audit issues based on estimates whether of additional taxes, penalties and interest will be due. Where the final tax outcomeof these matters is different from the amounts thatwere initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred tax assets are reviewed at each reporting date and reduced the extent to that it is no longer probable that sufficient taxable profit will availablebe to allow all or partof the deferred tax Theasset to estimationbe utilised. of that probability includes judgements based on the expected performance. Various factors are considered inorder assess to the probability the of future utilisation deferred of tax assets, including past operating results, operational plan, expiration tax of losses carried forward, properties, costs sell to the mining properties and the appropriate post-tax discount Reductions rate. in metal price forecasts, increases in estimated future costs production, of increases in estimated future capital costs, reductions in the amount recoverableof reserves and resources and/or adverse current economics can result in a write-down the of carrying amounts equipment. and plant property, other or assets mining goodwill, Group’s the of In making the assessment for impairment, assets that do notgenerate independent cash inflows are allocatedto an appropriate cash-generating unit. Management necessarily applies its judgement in allocating assets that do not generate independent cash inflowsto appropriate cash-generating units, and also in estimating the timing andvalue of underlying cash flows within theof ore stock piles was US$194 million and work in-process was US$78 million. compensation Share-based the GroupIn November issued 2010, equity-settled share appreciation rights certain to employees. Equity-settled share appreciation rights are measured at fair value (excluding the effect non-market of based vesting conditions) at the grant. date of The fair value determined at the grant the date of awards is expensed as services are rendered over the vesting period, based remains. No other share based payment awards were issued the by Group during the year ended December 31 2013. Environmental obligations miningThe and Group’s exploration activities are subject various to laws and regulations governing the protection the of provisionThe Group’s environment. for future decommissioning and land restoration cost represents management’s best estimate the of present value the of future cash outflows requiredto settle the liability which reflects estimates of future costs, inflation, movements foreignin exchange rates and assumptionsof risks associated with the future cash outflows; and the applicable interest for rate discounting the future cashoutflows. Actual costs incurred in future periods could differ materially from the estimates. Additionally, future changes environmental to laws and regulations, life mine of estimates and discount rates could affect the carrying amount this of provision. Contingencies By their nature, contingencies will only be resolved when one or moreThe future assessment events occur or fail occur. to suchof contingencies inherently involves the exercise significant of judgements and estimatesof the outcomeof future events. Income and Taxes Mining Taxes The Group is subject income to tax and mining taxes in the Russian Federation and Kazakhstan. Mining taxes do not meet the definitionof a tax12 Incomeunder taxes.IAS Significant judgement is required in determining theprovision for these taxes and tax planning strategies. If actual results differ from these estimates or if these estimates must be adjusted in future periods, the financial position, resultsof operations and cash flowsmay be negatively affected. the value-in-use calculation. Subsequent changes the cash-generating to unit allocation the or timing to cash of flows could impact the carrying value the of respective assets. Stock piles and work in-process In determining mine operating costs recognised in the consolidated income management statement, the Group’s makes estimates quantities of ore of stacked on leach pads and in process and the recoverable gold and silver in this material determineto the average costs finished of goods sold during the period. Changes in these estimates can result in a change in mine operating costs future of periods and carrying amounts inventories. of December the carrying 31 At 2013 value
asset carrying values due changes to in estimated future cash flows; depletion charged in the consolidated income statement where such charges are determined using by the units-of-production method; units-of-production provisions for decommissioning and land restoration costs where changes in estimated reserves affect expectations about the timing theof payment such of costs; and carrying value deferred of tax assets and liabilities where changes in estimated reserves affect the carrying value theof relevant assets and liabilities. of operationsof or if thereare changes in any the of aforementioned assumptions. Such changes in estimated reserves may affect financialthe Group’s results and financial position in a numberways, of including the following: • • Ore reserve estimates may change from period to period as additional geological data becomes available during the course the during becomes available geological data additional period as period to from change may reserveOre estimates • • Depreciation Mining assets are depreciated using the units-of-production method except where the useful lives the of assets are shorter In order to calculate ore reserves, estimates and assumptions are required about geological, technical and economic factors, factors, economic and technical geological, about required are assumptions and reserves, estimates ore calculate to order In commodity demand, transport costs, costs, production rates, recovery techniques, production grades, quantities, including commodity prices, discount rates and exchange rates. Estimating the quantity and/or grade ore of reserves requires the size, shape and depth ore of bodies be determined to analysing by geological data such as the logging and assaying drill of samples. data. the interpret to difficult calculations and and geologicaljudgements complex require may process This Ore reserve estimates An ore reserve estimate is an estimate the of amount product of that can be economically and legally extracted from the Group’s properties. Ore reserve estimates are used the by Group in the calculation of: depletionmining of assets using the units-of- production method; impairment charges and in forecasting the timing the of payment decommissioning of and land restoration costs. Also, for the purpose impairment of review and the assessment the of timing the of payment decommissioning of and land restoration costs, management may take account into mineral resources in addition ore reserves to where there is a high degree confidenceof that such resources will extracted.be If actual results are not consistent with estimates and assumptions considered, the Group adjust may have to its estimates the of fair values assets of and liabilities recognised and the goodwill balance during the measurement period. Such a remeasurement could have an impact on the amounts reported in the consolidated income statement in current and future periods. The calculation the of units-of-production depreciation of rate could be impacted the extent to that actual production in some cases, include management’s estimates discounted of future cash flows. reserves under probable and proved on based are calculations depreciation units-of-production The mine. of life the than the JORC Code (JORC), which is the basis on which mine plans the Group’s are prepared as the useful lives these of assets are considered be limited to the life to the of relevant mine. For other property, plant and equipment, the straight-line method is applied over the estimated useful life the of asset which does not exceed the estimated mine life. in the future is different from current forecast production based on proved and probable oreThis reserves. would generally 3. Critical accounting judgements and sources key of estimation uncertainty continued Fair value of net assets acquired and liabilities assumed in business combinations In accordance the Group policy, with allocates the Group’s the cost the of acquired entity the assets to acquired and liabilities assumed based on their fair values as estimated on the acquisition. date of Any difference between the cost the of acquired entity and the fair value the of assets acquired and liabilities assumed is recordedThe Group as goodwill. exercises significant judgement in the process identifying of tangible and intangible assets and liabilities, valuing these assets and liabilities, and estimatingtheir remainingThe useful valuation lives. these of assets and liabilities is based onassumptions and criteria that, Impairment of goodwill, mining assets and other property, plant and equipment The Group considers both external and internal sources information of in assessing whether there are any indications that goodwill, mining assets or other property, plant and equipment owned the by Group are impaired. External sources of information the Group considers include: changes in the market and economic and legal environment in which the Group operates, that are not within its control and that affect the recoverable amount goodwill, of mining assets or other property, Internal sources information of the Group considers include the manner in which mining properties, plant and equipment are being used or expected be used to and indications economic of performance the of assets. In determining the recoverable amounts mining the of Group’s assets and other property, plant and equipment, management the Group’s determines the fair value less costs sell to estimating by the discounted future after-tax cash flowsexpected to be derived mining from the Group’s arise when there are significant changes in of the any factors or assumptions used in estimating ore reserves. equipment. and plant Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 124/125
(11)
299 (598) Total 7,124 2,174 4,374 1,395 7,282 3,475 3,766 9,737 9,737 9,449 (8,746) (1,844) (3,331) 71,013 (10,121) 31,071 20,201 58,650 (10,047) (10,709) (21,567) US$’000 US$’000 US$’000
– 230 3,577 (3,331) Amikan (8,784) 67,8 42 (17,9 9 5 ) 20,201 53,654 28,000 US$’000 US$’000 – – – – 3 127 2,317 1,166 Aurum (1,278) (1,163) US$’000 – – – (17) 627 848 2,749 1,475 1,688 (3,572) US$’000 Severno- Ural’skoye – – – 295 (549) 1,848 1,388 1,593 2,982 (1,389) US$’000 Ural’skoye
(Loss)/Gain disposal on Intercompany debt assigned to acquirer to assigned debt Intercompany Fair value of interest in associate undertaking acquired Consideration receivable Consideration Current liabilities Current Non-current liabilities Non-current Current assets Current Svetlobor the Group December acquired interestOn 24.99% in JSC 17 Nevyansk 2012, Group (NG), a Russian legal entity whose The allocation the of consideration paid the assets to acquired was as follows: wholly-owned subsidiary holds a mining and exploration licence forThe the Svetlobor Group issued area. consideration new ordinaryin the form 130,053 of shares in the Simultaneously, Company. CJSC VTB Capital (VTB) purchased 75.01% a stake in NG in exchange for 390,369 new Polymetal ordinaryshares, which were subscribed for subsidiary a by VTB of not meet the definitionof a business pursuantto IFRS 3 (2008) and this transaction has been treated as an acquisitionof assets. for cash a total consideration US$6.9 of million. The Group also entered legally into binding stake agreement in NG from VTB, acquire to as the soon 75.01% as this transaction is approved the by Government Commission on Monitoring Foreign of Investments, for cash consideration US$6.9 of million, plus any interest accrued per annum. on this amount 7.25% of at a rate The Group be the to December date when determined it obtained 17 2012 control over NG, and consolidated the acquiree from The cash receivedthat date. from VTB has been accounted for as a loan and included within borrowings (Note 26). NG does Non-current liabilities Non-current Other non-current assets non-current Other assets Current liabilities Current of disposed assets Net receivable Consideration acquirer to assigned debt Intercompany In the the prior Group disposed year, the of following minor subsidiaries: Severno-Ural’skoye GRP GRP LLC, Ural’skoye LLC and JSC Aurum. For further information on the partial disposal Amikan of Holding Limited, which owns the Veduga gold deposits, see 21. Note of: disposed assets Net Property, plant and equipment Net assets acquiredNet (b) Disposal subsidiary of Habarovsk Exploration Company LLC the GroupOn October sold 22 its subsidiary 2013 Habarovsk Exploration Company for US$3.5 LLC million in deferred cash considerationThe an unrelated to loss on party. disposal was calculated as follows: Property, plant and equipment disposal on Loss Mineral rights Mineral assets non-current Other Other assets Other liabilities Other assets acquiredNet Consideration: issued shares of value Fair
1,400 2,952 8,034 3,900
(9,896) 74,624 86,558 86,558 115,127 (23,025) US$’000
million. Semchenskoye does Zoloto not meet the definitionof a business pursuantto IFRS 3 (2008), thus wasit accounted to be US$0.1to million. for as an acquisitionThe Group a group of purchased assets. of mineral rights US$0.8 of million and other current liabilities MGK meets the definitionof a business pursuantto IFRS 3 (2008) thus wasit accountedfor at fairvalue using the The allocation the of purchase price based on the consideration paid and the fair value the of assets acquired was as follows: After evaluation the of possible outcome the of contingency, the Group estimated fair value the of contingent consideration its carrying value US$8.0 of million. method. acquisition for Semchenskoye field The in GroupKarelia. paid cash considerationof US$0.8 million; in addition, a contingent consideration US$0.5of million is payable the by Group in case the exploration the of licence area proves be successful to and the mining licence for the new gold deposit is received Another before December million US$1.2 25 is payable 2014. depending on the level provedof and probable ore reserves the of new deposit. US$0.024 of ZAO ‘Maminskaya Gornorudnaya kompania’ Gornorudnaya ‘Maminskaya ZAO On February 20 the Group entered a binding into 2013 memorandum understanding of with Vitalex Investments and Ltd Arrowline Investments acquire to Ltd a 100% interest in ZAO ‘Maminskaya Gornorudnaya kompania’ (‘MGK’), which holds the GroupOn 9 April completed 2013 the acquisition 100% the of of ordinary share capitalThe and consideration debt in MGK. for the equity investment was US$3.9 Polymetal’s of ordinary million payable in shares cash and valued 5,491,661 at the The debtacquisition investment million. inMGK date at US$74.6 was acquired for consideration payable in cash and equalling Zoloto Semchenskoye the GroupOn acquired August 22 2012 100% interest in ‘Semchenskoye (Semchenskoye LLC’ Zoloto Zoloto) from Suntsov V.A. (25% interest) and Polister Limited interest), (75% both unrelated parties. Semchenskoye holds Zoloto the exploration licence a group of assets. The Groupa group purchased assets. of mineral rights at cost million US$13.4 of and other current liabilities $(0.01) of million. field mining (‘Maminskoye’). gold Maminskoye the for licence mining and exploration an economica 42.65% interest in the principal asset – the Veduga licence. for further See 21 Note information. Veduga On 7 February the Group completed 2012 the acquisition from AngloGold Ashanti Holdings (AngloGold) PLC AngloGold’s of 50% interest in various companies held in joint venture with Polymetal comprising the AngloGold Ashanti – Polymetal Strategic Alliance for US$20 million. It subsequently entered a series into transactions of with new investors (unrelated parties), retaining In the the prior following year, transactions took place: Olymp does Ltd. not meet the definitionof a business pursuantto IFRS 3 (2008) thus it is accountedfor as an acquisitionof assets acquiredNet rights Mineral and exploration licence for the Olcha gold-silver deposit in exchange new ordinary for 775,000 shares in Polymetal. Property, plant and equipment taxDeferred liability Other assets, net assets acquiredNet Consideration: Fair value of shares issued in Polymetal International plc Cash consideration for debt investment 4. Acquisitions and disposals and Acquisitions 4. (a) asset and acquisitions Business combinations Olymp Ltd. January the GroupOn 24 completed 2013 the acquisition Russian a 100% Olymp of of Ltd., legal entity holding the mining Non-current liabilities Non-current equity investment for consideration Cash consideration Total Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 126/127 – – 662 Total (662) 8,131 1,524 2,340 2,850 (1,524) (8,746) (3,854) 53,142 87,824 15,651 10,696 12,291 24,233 30,889 88,486 (40,417) (74,240) (10,696) (42,735) 427,152 (24,233) 131,479 (42,880) 168,132 201,105 877,897 237,533 140,045 356,817 153,327 598,491 299,992 (157,620 ) (198,037) (233,679) 1,123,796 1,706,597 2,094,742 2,921,568 – – – – – – – – – – – – – – – – – – – and 5,577 5,577 ( 3,474) 42,119 (2,545) (11,929 ) (18,822) (35,672) (68,924) (76,237) (60,513) (76,237) (26,805) (316,984) (414,449) balances (316,984) operations Intersegment – – – – – – – – 759 222 865 and (865) other 1,215 2,010 2,340 (1,215) (2,460) (5,742) 15,651 12,291 25,420 19,630 24,233 99,476 40,650 19,630 (24,233) 118,079 (42,616) 127,38 4 297,227 411,786 264,395 306,447 298,092 Corporate – – – – – 662 Total (662) 1,524 2,663 (1,524) (2,639) 11,561 67,374 13,400 54,928 63,279 62,617 (11,561) 75,973 30,889 (39,659) 201,105 109,672 236,318 153,327 328,096 430,404 293,394 680,470 896,789 (233,679) 1,143,553 1,866,019 1,704,587 2,675,634 segments reportable – – – – – – – – –
– 26 (26) (225) 2,971 2,594 5,905 2,971 (1,882) (2,594) 16,124 (4,291) 59,471 22,013 12,362 13,402 40,612 (13,177) 56,409 50,354 10,255 49,547 58,006 (36,437) 325,580 463,323 Mayskoye – – – – – – – – – – –
117 183 605 (117) (167) (183) 9,342 4,802 9,342 9,536 (2,927) 84,716 12,630 70,997 59,840 46,804 43,405 (59,673) 172,194 231,933 103,311 568,599 293,778 704,921 Albazino Amursk – – – – – – – – –
– 261 325 760 (179) (261) (325) (302) 9,178 5,074 4,629 5,555 4,368 80,114 14,527 16,571 19,301 42,323 74,097 23,882 (16,392) Varvara (42,475) 198,151 123,465 106,748 150,564 189,527 – – – – – – – – –
497 (149) (497) 1,298 (6,232) 17,876 57,317 16,189 57,494 11,495 14,334 16,587 72,332 75,229 10,005 14,334 43,303 63,297 (43,154) (10,005) Omolon (82,324) 188,623 250,847 134,967 222,795 396,862 – – – – –
– – 401 596 (401) (770) (596) 1,847 8,876 Dukat (1,847) 11,135 51,414 11,954 24,976 61,436 18,622 13,400 13,469 18,221 83,533 40,309 (10,737) (60,666) 416,822 330,341 571,780 531,587 270,576 156,431 228,971 – – – – – – – – – –
115 435 (115) (435) (239) 5,165 6,056 9,459 6,056 (6,799) 59,741 28,160 16,497 53,671 54,548 39,443 23,866 84,958 (23,627) (72,022) 173,125 102,168 126,345 104,404 202,641 Khakanja – – – – – – – – – – –
107 166 (107) (166) (910) Voro 7,325 7,325 2,559 2,554 8,898 8,086 62,154 69,174 19,701 17,9 0 0 19,776 86,437 93,866 (10,780) (16,990) 167,472 214,712 130,127 109,395
Cost of sales sales of Cost in included Depreciation Write-down of non-metal non-metal of Write-down inventory net to realisable value Rehabilitation expenses Rehabilitation Intercompany management services management Intercompany and selling expenses selling and Other operating expenses operating Other Depreciation included in SGA in included Depreciation Share based compensation based Share Mining taxes, penalties taxes, Mining interest accrued and
General, administrative
Loss before tax For the year ended 31 December 2013 ($’000) Revenue from external customers external from Revenue Income tax benefit Income Cost of sales, excluding and depletion depreciation, write-down of inventory to net realisable value Intersegment revenue Intersegment Loss for the financial period financial the for Loss Current metal inventories metal Current General, administrative and selling selling and General, administrative depreciation, excluding expenses, amortization based share and compensation Non-current segment assets: segment Non-current Current non-metal inventories non-metal Current Other operating expenses expenses operating Other tax charges additional excluding Goodwill Property, plant and equipment, net equipment, and plant Property, Non-current inventory Non-current Share of loss of associates and joint ventures Investments in associates in Investments Adjusted EBITDA Adjusted Total segment assets segment Total Depreciation expense Depreciation Rehabilitation expenses Rehabilitation Acquired in business combinations combinations business in Acquired assets of group of acquisition and Additions to non-current assets: non-current to Additions equipment and plant Property, Write-down of non-metal non-metal of Write-down inventory net to realisable value Impairment of non-current assets non-current of Impairment Impairment of investment in associate in investment of Impairment Share-based compensation Share-based Write-downs metal of inventories netto realisable value Foreign exchange loss exchange Foreign Mining taxes, penalties taxes, Mining interest accrued and Loss on disposal of subsidiaries of disposal on Loss Operating profit/(loss) Change in fair value consideration contingent of Finance income Finance The segment Adjusted EBITDA reconciles the profit to before income tax follows:as Finance costs Finance
Voro (CJSC Voro Gold Northern of Urals); Khakanja (LLC Okhotskaya Mining and Exploration Company); Olymp LLC); Silver; (CJSC Magadan Dukat LLC); (Omolon Omolon Company Mining Gold Varvarinskoye); (JSC Varvara LLC); and Plant Amursk Hydrometallurgical (AlbazinoAmursk-Albazino Resources Ltd, Mayskoye (Mayskoye Gold Mining Company LLC). The measure which management and the Chief Operating Decision Maker (the CODM) use evaluate to the performance 5. Segment information Segment 5. reportable segments: seven has Group The • • • • • • • Reportable segments are determined based internal on the Group’s management reports and are separated based on the companies) other and purchasing exploration, (management, activities and companies Minor structure. geographical Group’s engaged is segment Each segment. other and corporate within disclosed are reportable criteria segment the meet not do which in gold, silver or copper mining and related activities, including exploration, extraction, processing The and reclamation. Group’s segments are all based in the Russian Federation, except for Varvara which is based in Kazakhstan. Revenue shown as corporate and other comprises, principally, intersegment revenue relating the supply to inventories, of Business segment current assets and liabilities, other than current are inventory, not reviewed the by CODM and therefore of theof Group is segment Adjusted EBITDA, whichis defined as profit for the period adjusted for depreciation and amortization, impairment non-current of assets, write-downs inventory of net realisable to value, share-based compensation expenses, losses, or gains exchange foreign subsidiaries, of disposal or acquisition on arising losses or gains expenses, rehabilitation changes in the fair value contingent of consideration, finance income, finance costs, income tax expenses otherand tax exposure accrued within other operatingThe accounting expenses. policies the of reportable segments are consistent with accounting those the of Group’s policies under IFRS as described in 2. Note spare parts and fixed assets, and rendering management services productionto the Group’s entities. Intersegment revenue is recognised based on costs incurred plus a fixed margin basis. External revenue shown within corporate andother represents revenue from services provided third to parties non-mining the by Group’s subsidiaries. are not disclosed in these consolidated financial statements. Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 128/129 2012 2012 2,810 1,429 1,853 1,853 1,066 2,343 2,343 2,096 3,035 3,035 52,863 restated 29,519 364,134 364,134 US$’000 US$’000 US$’000 US$’000 178,059 219,546 832,886 178,417 966,463 396,543 396,543 120,910 853,162 853,162
851,839 335,564 335,564 (186,989) 1,852,212 1,852,212 1,852,212 1,055,569 1,854,065 1,034,389 31 December 31 31 December 31
30 Year ended Year ended price 2013 579 2013 1,640 1,524 2,451 7,5 40 per troy 65,183 payable) 90,512 Average 10,696 13,983 18,836 18,836 170,178 151,970 US$’000 US$’000 919,499 165,368 165,368 393,067 (53,985) 384,192 384,192 (US Dollar 109,421 245,483 1,704,146 (unaudited) 1,706,597 1,060,935 1,123,796 1,166,506 ounce/tonne 31 December 31 31 December 31
589 7,011 tonnes 27,797 ounces/ payable Thousand (unaudited) Year endedYear December 31 2012
593 7,011 tonnes 27,797 ounces/ shipped Thousand (unaudited) 40,723 US$’000 592,576 1,704,146 1,070,847
22 price 1,326 6,631 per troy payable) Average (US Dollar (unaudited) ounce/tonne
808 808 6,141 tonnes 27,376 ounces/ payable Thousand (unaudited) Year endedYear 31 December 2013
818 6,468 27,414 tonnes ounces/ shipped Thousand (unaudited)
Total Other salesOther Sales to KazakhstanSales to China to Sales Sales Korea to Sales Japan to 6. Revenue 6. below: presented is customers of geographical regions by analysed Revenue Group’s revenues.Group’s Presented below is an analysis revenue of from gold, silver and copper sales: ounces) (thousand Silver has separately written down some its of metal inventories (refer 23). Note to largest customers amounting US$391 to million, US$273 million million, and respectively US$175 US$357 (2012: million, US$340 million and US$234 million, respectively). No other customers individually account for more the than of 10% (tonnes)Copper operatingCash costs On-mine costs (Note 8) Smelting costs (Note 9) Due significant to decline in gold and silver prices during first half of the year the 31 December Groupended 2013, Federation Russian the within Sales Metal sales related to parties (sales Nomos-Bank) to are disclosed in 34. Note Included in revenues for the year ended December are revenues 31 which 2013 arose from sales three to the of Group’s ounces) (thousand Gold Cost of sales7. excluding write-downs of metal inventories to net realisable value Purchase of ore from third parties Total Sales Europe to sales metal Total Mining taxMining Total costsTotal of production Increase in metal inventories Cost of other sales Total Purchase of ore from related parties related from ore of Purchase cashTotal operating costs 10) (Note assets operating of depletion and Depreciation Rehabilitation expenses Write-down of non-metal inventories to net realisable value (Note 23) (Note value realisable net to inventories non-metal of Write-down
– – Total 2,810 1,804 6,677 4,657 4,000 2,343 21,051 (4,717) (4,437) (2,810) (2,343) 87,944 65,911 10,270 29,822 54,279 98,863 (65,911) (10,709) (26,787) 115,106 434,384 (54,279) 181,648 297,452 543,169 651,091 851,839 142,226 122,932 660,919 153,855 708,897 428,223 932,488 (137,789 ) (222,868) 3,290,140 1,854,065 2,205,732 – – – – –
– – – – – – – – – – – – and 734 734 (4,261) (4,558) 38,222 ( 27,762 ) (51,885) (19,565) (76,545) balances (54,149) (38,323) (399,281) (491,019) (399,281) operations (54,149) Intersegment – – – –
– – – – 104 923 486 (923) 4,232 1,804 (5,326) (2,759) 21,142 43,116 17,6 59 17,659 10,270 54,279 29,822 (54,279) 99,428 254,477 366,971 157,389 176,823 (60,528) 366,971 480,432 and other Corporate
– – – – – Total Total 2,810 2,343 4,000 (3,514) (2,810) (2,343) 69,551 65,911 94,631 61,827 10,587 ( 65,911) 115,106 547,241 417,50 3 (35,463) 141,303 884,149 741,207 135,462 273,901 100,804 (137,789) 991,963 775,596 reportable segments 3,087,548 2,056,671 1,853,961 – –
– – – – – – – – – – – 1 162 (147) (162) 3,363 2,868 9,088 2,868 8,779 (3,363) 10,119 (3,362) 13,515 (8,447) 23,720 31,200 (11,648) 320,119 106,262 398,673 Mayskoye –
– – – – – – 206 883 ( 211) (206) (883) 4,000 (1,161) 9,832 9,730 11,946 51,240 35,429 11,946 11,669 14,252 99,182 66,370 45,022 10,297 16,088 (14,041) 777,039 Albazino 126,924 104,037 595,261 Amursk – – –
– – – – – – 674 269 (155) (269) (858) 5,342 6,471 5,933 4,329 68,411 16,476 18,775 51,998 21,293 14,038 12,304 Varvara 117,147 75,509 (12,304) (13,883) 154,276 301,911 215,241 101,582 103,533 – – –
– – – – – – (83) 356 (356) 7,335 7,335 5,836 9,279 (6,219) (5,836) 31,091 15,581 65,786 45,987 91,557 82,363 Omolon (31,008) 187,494 109,105 295,748 285,904 150,294 128,840 506,782 – –
– – – – – 71 (71) 295 (499) (295) Dukat 8,737 20,038 32,197 23,197 52,452 10,993 49,432 73,645 53,607 12,487 (10,211) (31,698) (53,607) 294,120 378,158 102,062 262,198 292,130 449,867 621,091 672,881 – – –
– – – – – – 4 (4) 878 (878) (464) 7,554 8,833 14,535 (6,545) 15,842 14,535 53,215 14,238 28,788 29,950 84,983 (29,486) 177,519 131,963 146,536 101,595 146,687 302,482 306,526 Khakanja – – –
– – – – – – – 183 398 Voro (398) 7,953 4,213 7,823 6,358 6,358 (1,940) 27,125 90,417 19,613 58,652 20,085 (17,673 ) 72,346 (10,322) 104,708 175,526 162,072 182,083 268,427
Cost of sales Depreciation included in Cost of sales of Cost in included Depreciation Rehabilitation expenses Rehabilitation Write-down of non-metal inventory to realisable value net Depreciation included in SGA in included Depreciation compensation based Share General, administrative and selling selling and administrative General, expenses Intercompany management services management Intercompany Other operating expenses operating Other Mining taxes, penalties taxes, Mining interest accrued and
For the year ended 31 December 2012 ($’000) restated customers external from Revenue Intersegment revenue Intersegment Cost of sales, excluding and depletion depreciation, write-down of inventoryto net realisable value Profit before tax Income taxIncome expense General, administrative and selling selling and General, administrative depreciation, excluding expenses, amortization based share and compensation Profit for the year attributableyear the for Profit parent the equity holders of the to Other operating expenses excl excl expenses operating Other tax chargesadditional Non-current segment assets: segment Non-current Current metal inventories metal Current and joint ventures Share of loss of associates Current non-metal inventories non-metal Current Property, plant and equipment, net equipment, and plant Property, Adjusted EBITDA Adjusted Goodwill Depreciation expense Depreciation expenses Rehabilitation Write-downs of metal inventories net to realisable value Non-current inventory Non-current Investments in associates in Investments Write-down of non-metal inventory to realisable value net Additions to non-current assets: non-current to Additions Total segment assets segment Total Additional tax charges according to the the to according tax charges Additional Court decision Arbitration Supreme Loss on disposal of subsidiaries of disposal on Loss Share-based compensation Share-based Acquired in the year Property, plant and equipment and plant Property, Operating profit/(loss) interest in joint venture joint in interest Gain on acquisition of remaining remaining of acquisition on Gain Foreign exchange Foreign Change in fair value of contingent consideration contingent of Finance income Finance
5. Segment information continued information Segment 5. Finance costs Finance Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 130/131
759 267 901 695 2012 2012 2012 1,119 1,132 1,027 7,8 6 0 1,926 1,434 1,434 9,325 8,993 54,279 53,963 Number restated ( 23,176 ) 65,911 12,835 12,835 14,205 14,205 10,544 (53,831) 32,908 252,152 US$’000 US$’000 283,387 360,394 153,855 153,855 31 December 31 31 December 31 31 December 31 Year ended Year ended 913 910 941 Year ended 730 662 2013 2013 2013 1,144 1,158 1,952 1,089 1,484 6,547 9,232 9,503 64,557 24,233 21,164 24,144 10,709 Number (13,815) 14,668 88,486 (52,003) 370,106 281,316 US$’000 US$’000 304,288 31 December 31 31 December 31 31 December 31
Dukat Total Less: employee costs absorbed into unsold metal inventory balances Reconciliation: Less: employee costs capitalised 12. Other expenses Omolon Varvara Amursk-Albazino Exploration expenses Exploration otherTaxes, than income tax taxThe authorities. background these to cases and their impact on the results the of Group has been set out in more detail within Note 16. costs Employee 13. The weighted average number employees of during the year ended December was: 31 2013 Khakanja Mayskoye other and Corporate Wages and salaries security costs Social Share based payments expense payrollTotal costs Compensation management for key personnel is disclosed within 34. Note Mining taxes, penalties and accrued interest (Note 16) Social payments Mining taxes, penalties and accrued interest have been accrued in respect various of disputes with the Russian and Kazakh Voro operating costs in included costs Employee Loss on disposal of property, plant and equipment services communal and Housing Bad debt allowance Other expenses expenses Other Total
2012 2012 2012 902 2012
4,017 1,115 4,437 2,002 60,913 restated restated 12,073 57,0 6 3 92,429 18,430 90,760 54,279 54,279 117,50 4 178,417 181,648 US$’000 US$’000 US$’000 US$’000 137,3 3 9 364,134 364,134 121,366 146,876 138,258 138,258 335,564 335,564 31 December 31 31 December 31 31 December 31 31 December 31 Year ended Year ended Year ended Year ended 609 609 2013 2013 2013 2013 1,674 1,021 3,854 3,854 2,368 2,368 86,265 18,739 14,354 70,650 24,233 168,132 159,218 US$’000 US$’000 US$’000 US$’000 114,679 171,358 109,475 384,192 384,192 139,489 139,489 106,952 165,936 165,936 245,483 393,067 393,067 31 December 31 31 December 31 31 December 31 31 December 31
Total (NoteTotal 7) 11. General, administrative and selling expenses selling and administrative General, 11. Labour Smelting and selling expenses) and depreciation related assets to employed in development projects where the charge is capitalised. Depreciation expense, which is excluded calculation from the Group’s Adjusted of EBITDA (see 5), Note also excludes amounts balances. inventory metal unsold absorbed into Services Other Total Depreciation on operating assets excludes depreciation relating non-operating to assets (included in general, administrative On-mine Share-based compensation Share-based Depreciation Services Labour otherTaxes, than income tax 10. Depletion and depreciation of operating assets depreciation of and Depletion 10. parts spare and Consumables 9. Smelting costs Consumables and spare parts spare and Consumables 7. Cost of sales7. excludingwrite-downs of metal inventories to net realisable value continued Mining tax is a royalty payable in Russian Federation and Kazakhstan which is calculated based on the value the of precious metals extractedThis in value the period. is usually determined based on the realised selling price precious of in case metals or, costs On-mine 8. Mining tax in respect the of metal inventories produced during the year is recognised within cost sales, of while the additional mining tax accruals in respect various of disputes with tax authorities are recognised within other expenses (see 12). Note if there were no sales during the period, cost sales of metals of extracted (Russian Federation) or the average market price (Kazakhstan) period. the during Total (NoteTotal 7) Other expenses Other Services Labour otherTaxes, than income tax Total (NoteTotal 7) Other expenses Other Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 132/133
(125) (100) Total
72,993 25,399 (24,736) (22,633) US$’000
(6)
(556) (930) Other 4,898 8,847 12,253 US$’000 – – – 85 Loan 1,749 (1,834) US$’000 (37) 595 (5,036) 57,621 32,229 85,372 US$’000 Tax losses Tax 353 (160) (601) Trade 5,767 6,078 11,437 payables US$’000 and other (484) 6,323 16,086 (23,025) (90,154) (91,254) US$’000 Property, plant, and plant, equipment million of additional income tax exposures provided for and for provided tax income exposures additional of million – 587 1,014 (5,481) 11,555 (18,637) US$’000 Inventories – – 709 (980) 13,072 13,343 US$’000 obligation Environmental Exchange differencesExchange Disposal At December 31 2013 Acquisition Credit income to statement million paid out inUS$10.1 respect Varvara of litigation and US$31.6 million in respect other of exposures. DecemberAt 31 2013 During the year ended December the Group 31 paid US$8.3 2013 million mining of taxes, interest and penalties in respect in 2007 andin million 2007 US$13.0 in respect cases of relating the deductibility to transportation of and processing expenses and expense US$49.6 of million was recognised in the year ended December 31 2012. The Group also recognised mining taxes, interest and penalties totalling US$65.9 million which were recognised within Other Operating ExpensesThese expenses (see comprised 12). Note million US$15.0 paid out in respect the of Magadan Silver/ABN AMRO case, US$9.2 million provided for in respect the of Magadan Silver Mineral Extraction case, Tax theof Magadan million Silver Varvara of Mineral ExcessTax and provided Extraction Profits for 2012 in case, US$17.1 Tax million various of US$7.3 Varvara exposures. In respect the of year ended no December additional 31 significant 2013, income tax and mining taxexposures have been provided for. Other exposures considered possible but not probable and therefore not provided US$22.3 for to total million (31 December US$3 2012: million) and are described in 29. Note Deferred taxation Deferred taxation is attributable the temporary to differences that exist between the carrying amounts assets of and liabilities for financial reporting purposes and the amounts usedfor tax purposes. The following are the major deferred tax liabilities and assets recognised the by Group and movements thereon during The actual taxexpense differs from the amount which would have beendetermined applying by the statutory 20% of rate for the Russian Federation and Kazakhstan profit to before income tax as a resultof the applicationof relevant jurisdictional tax deductions These profit. accounting of determination the in included certain are which disallow deductions which regulations, include share-based payment expenses, social related expenditures and other non-production costs, certain general and administrative expenses, financingexpenses, foreign exchange related andother costs. In the normal course business, of the Group is subject examination to tax by authorities throughout the Russian Federation and Kazakhstan. Out the of large operating companies the of Group, tax authorities have audited CJSC Gold Northern of Urals Omolon Gold Mining Okhotskaya Company LLC LLC, Mining 2011, up to and Exploration Company CJSC and Mayskoye Gold CJSCMining Magadan Company Silver 2010, up to LLC for the period 2009,up JSC to Varvarinskoye for the period 2010. up to claims subsequent exclude fully not do audits conducted Kazakhstan previously Russian and tax to legislation, According period. audited the to relating Income tax and other expenses arising in respect of lost litigation DecemberAt 31 2012 During the year the Group ended December provided 31 for certain 2012, expenses and tax exposures in respect lostof litigation. The additional income tax charges incurred in respect litigations of during the year ended total December 31 2012 millionUS$27.5 and comprised million US$14.5 paid out in respect a case of concerning Magadan Silver sales ABN to AMRO US$5.1 Including Varvara. in losses exchange foreign of million excess profit tax in KazakhstanUS$17.1 recognisedtotal a additionalfor the first income2012, time in tax reporting period. the At 1 January restated 2013
– – 10 99 2012 2012 109 254 842 355 355 588 2012 2012 1,197 3,621 4,643 1,306 5,055 3,838 17,111 17,111
26,787 18,523 (4,336) 27,475 27,475 restated restated 10,856 36,489 US$’000 US$’000 US$’000 US$’000 174,444 174,444 651,091 130,218 130,218 222,868 222,868
December
31 December 31 31 31 December 31 31 December 31 – – – – 10 16 394 Year ended Year ended Year ended Year ended 527 420 595 353 948 2013 2013 2013 2013 1,475 9,070 3,693 8,313 8,313 4,720 1,895 8,309 29,972 42,735 40,417 40,417 50,599 US$’000 US$’000 US$’000 US$’000 (31,524) (72,992) 105,096 (157,620 ) 31 December 31 31 December 31 31 December 31 31 December 31
Tax effect of non-deductible expenses and other permanent differences permanent other and expenses non-deductible effect of Tax incomeTotal tax expense Other non-audit services non-audit Other Income tax provision in respect of other exposures Income tax arising in respect of lost litigation Total non-auditTotal services (excluding half-year review) Taxation compliance services (i.e. related to assistance with corporate tax returns) corporate with assistance to related services compliance (i.e. Taxation fees Total Capital project consulting services consulting project Capital (Loss)/Profit before income tax Statutory income tax expense at the tax rate of 20% jurisdictions tax-free incurred in Loss compensation Share-based Excess profit taxes payable in Kazakhstan Effect of income tax rate adjustment A reconciliation between the reported amount income of tax expense attributable loss/profit to before income taxfor theyear ended December is as follows: 31 2013 Current income taxes Excess profit taxes payable in Kazakhstan Deferred income taxes Income tax expense arising in respect of lost litigation Audit-related assurance services assurance review) (half year Audit-related Interest expense on borrowings excludes borrowing costs capitalised in the cost qualifying of assets US$6,1 of million Interest expense on borrowings tax Income 16. The income tax expense for the year ended December is as follows: 31 2013 Total audit fees audit Total auditTotal and half-year review fees millionThese duringand respectively. amounts US$14.7 the years were calculated ended December and 2012, 31 2013 based general on the Group’s borrowing pool and applying by an effective interest and 2.99% of rate 3.06%, respectively, cumulativeto expenditure on such assets. 15. Finance costs Finance 15. Fees payable to the auditor and their associates for the audit of the Company’s Annual Report Kingdom United
14. Auditor’s remuneration Auditor’s 14. Overseas Unwinding discount on borrowings on discount Unwinding Unwinding of discount on environmental obligations environmental on discount of Unwinding Total Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 134/135
Total
75,976 12,291 125,129 US$’000 213,396
– –
12,291 12,291 US$’000 and other and Corporate – Total 75,976 125,129 201,105 US$’000 operating segments – – 16,587 16,587 Omolon US$’000 Year endedYear 31 December 2013 – 80,114 17,358 62,756 Varvara US$’000 – 91,184 13,220 US$’000 104,404 Khakanja
Total million. This US$31.2of is subject million. approval to shareholders by at the Annual General Meeting and has therefore not been included as a liability in these financial statements. an interimOn September 23 dividend 2013 1 cent of per share was paid shareholders to the by Company resulting in cash outflowsof US$3.9 million. 31 cents a final of per dividend share Junewas 2013 paidto shareholdersfor 2012 On 17 by the Company resulting in cash million. a special January Onoutflows 16 dividendof 2013, US$121.2 50 of cents per share was paid shareholders to the by Company resulting in million. cash outflowsof US$191.3 20 of centsfinal a per dividendsharewas June paidto 2012 shareholders for 2011 On 14 by the Company resulting in cash outflowsof US$76.5 million. Impairment losses 18. due significant to 30At June 2013, decline in gold, silver and copper market prices in firsttheGroup quarter 2013, carried 17. Dividends 17. A final dividend has been proposed in relationto theyear of 8 cents per share givingtotalexpected a dividend out an impairment review its of property, plant and equipment, goodwill and other non-current assets. As a result this of review, impairmenttotal million charges were recognised US$199.1 of as at 30 June 2013. During second half the of year ended December there was 31 a stabilisation 2013 in gold, silver and copper market prices. impairment individual where unit, generating cash Omolon the performed for only was review impairment the Therefore, indicators exist due downgrades to in reserves and changes in the life mine of plan. As a result, a further impairment million US$12 of was recognised December as at 31 2013. In the view management of there are no indicators impairment of (or impairment reversal) for other cash generating units December andas no at 31 further 2013 impairment December was recognised. as at 31 2013 impairmentTotal charges nil) US$213.4 million of recognised (2012: during the year ended December comprise 31 2013 following: the After the related million, tax the credit post-tax impairment US$21.1 of charge million. is US$192.3 Equipment and Property,Impairment Plant of Each cash generating unit is determined on the geographical basis Group’s of structure and equals reporting the Group’s to segmentsThe (refer carrying 5). Note to amount cash of generating units excludes certain exploration assets included within the segment assets which are currently under development and have not reached a stage where there is enough information estimateto the future cash flows that might be eventually generatedThefollowing by the project. amounts excludedare from cash generating units carrying amounts: US$36.7These million. were assessed for impairment separately. The carrying amounts all of the cash-generating units were assessed against their recoverable amounts determined based on a fair value less costs sell to calculation. Fair value is based on the application the of Discounted Cash Flow Method (DCF) using The post-taxDCF cashmethod is attributable flows. to the developmentof proved and probable reserves and certain resources where a relevant resource-to-reserve conversion ratio can be reasonably applied. in the DCF calculations which is equal its nominal to 7.1%) (2012: The Group used a post-tax real discount 7.1% of rate weighted average cost capital of 9%) 9%The of translated (2012: DCF method real into terms. used is based on the following assumptions: key Commodity prices Commodity prices are based on latest internal forecasts, benchmarked against external sources information. of In the impairment tests performed, the flat real long-term gold, silver and copper pricesof US$1,200 per ounce, US$18 per ounce perand US$7,000 tonne, respectively, have been used estimate to future revenues. Property, plant and equipment Goodwill Investments in associates in Investments
2013 2012
7,401 8,971 6,229 2,680
67,575 58,024 19,939 25,059 22,272 90,698 restated
US$’000 (24,736) (82,760) US$’000 176,034 426,858
31 December 31 31 December 31 Year ended 2013 88,484 25,399 US$’000 (63,085) 31 December 31 2020
December in environmental obligations, or reductions in precious taxThe metal Group’s losses prices. carried forward expire as follows: of the DTA considered theof DTA realisable, could be reduced however, in the near term if estimates future of taxable income during the carry forward period are reduced due delays to in production start dates, decreases in ore reserve estimates, increases December31 2018 December31 2019 31 December31 2021 December31 2022 December31 2023 tax purposes for forward carried loss Total Year ended December31 2014 The Group’s estimateThe future of Group’s taxable income is based on established proven and probable reserves which can be economicallyThe related developed. detailed mine plans and forecasts provide sufficient supporting evidence that the Losses incurred in certain taxable entities in recent years have createdThe a history Group losses of December as 31 of 2013. has concluded that there is sufficient evidenceovercometo the recent historyof losses based forecastson of sufficient taxable income in the carry-forward period. is more likely than not based upon expectations future of taxable income in the Russian Federation and Kazakhstan and tax strategies. planning available Group will generate taxable earnings be able to fully to even realise under various its net DTA stressedThe scenarios. amount December31 2015 December31 2016 December31 2017 Tax lossesTax carried forward represent amounts available for offset against future taxable income generated JSC by Omolon Gold Mining Albazino ZK Mayskoye LLC, Company, Resources Amursk LLC, Hydrometallurgy Plant and LLC the Company during the period Each 2023. up legal to entity within the Group represents a separate tax-paying component for income tax purposes. Deferred taxDeferred liabilities 16. Income tax continued Deferred tax assets and liabilities are offset where the Group has a legally enforceableThe following right analysis do so. to reporting purposes: financial for tax balances presented deferred shows The Group believes that recoverability the of recognized deferred tax asset US$88.5 of (DTA) million December at 31 2013 Deferred tax assets Total The tax losses one of entity cannot be used reduce to taxable income other of entities the December of Group. As at 31 2013 the December aggregateand 31 tax 2012 losses carried forward were US$426.8 million billion) (RUB13.9 and US$288.1 million (RUB billion), 8.8 respectively. The deferred tax liabilities for taxes that would be payable on the unremitted earnings certain of the of Group subsidiaries have not been recognised as the Group has determined that the undistributed profitof its subsidiaries will not be distributed in the foreseeableThe temporary future. differences associated with investments in subsidiaries, for which deferred tax liabilities have million). not been recognised, amount US$1,712 US$1,802 million to (2012: Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 136/137 –
2012 2012 8,738 6,519 68,411 14,237 23,720 115,106 115,106
US$’000 US$’000 108,587
31 December 31 December 31
– – 2013 2013 8,876 22,013 (8,241) 30,889 30,889 115,106 US$’000 US$’000 (75,976) 31 December 31 December 31 5% simultaneous 5% decrease in gold and silver prices over the life mine; of increase5% in operating expenses over the life mine; of and increase0.5% in the discount applied. rate Mayskoye Khakanja Dukat Total Mining assets December included at 31 mineral 2013 rights with net book value which amounted US$376.3 to million (31 December 2012: US$367.8 million).(31 December US$367.8 Mineral 2012: rights the of Group comprise assets acquired upon acquisition subsidiaries of acquisitions. asset and IFRIC was 20 adopted from (see 1 January 35). note Comparative 2012 balance were restated recognise to stripping assets US$56.3of December stripping 31 At million costs December 2013 US$91.3 of at 31 million have 2012. been capitalised assets. Mining within fromTransfers Capital construction in-progressMining to assets during the year relate mainly Mayskoye (transfers to amounting US$133 million),to where assets reached commercial production in April 2013. The additions and the disposals property, of plant and equipment in the year ended are December shown 31 net of 2012 millionUS$67.8 exploration of and development assets recognised on acquisition a controlling of interest in Amikan Holding Ltd in February and subsequently 2012 derecognised on loss control of in that entity following its (see disposal 21). Note in May 2012 No property, plant and equipment were pledged as collateral December December or at 31 at 31 2012. 2013 Impairment losses recognised during the year ended December 31 2013 During the current as a result year, significant of gold, silver and copper market price declines below levels used in the impairment tests, the 2012 Group carriedGroup’s out a review the of recoverable amount its of property, plant and equipment. The review led the recognition to impairment million, of which losses has been US$125.1 of recognised in the income statement. for furtherRefer 18 Note to details. Goodwill 20. Impairment losses recognised during the year ended December 31 2013 As a result significant of gold, silver and copper market prices decline annual below levels 2012 used in the Group’s impairment losses Accumulated and Cost At 1 January Goodwill has been allocated for impairment testing purposes the following to cash-generating units: Varvara impairment tests during the period the ended Group carried 30 June 2013, out a review the of recoverable amount goodwill of at 30 June 2013. The review led the recognition to at 30 June an of impairment 2013. charge US$76 of million goodwill, of which has been recognised in the income for details. statement. Refer 18 Note to During the there second was a stabilisation half 2013 of gold, of silver and copper market prices. In management’s view there are no indicators impairment of December and as no 31 further of 2013 impairment goodwill of December was recognised. at 31 2013 Sensitivity analysis For the cash-generating units where the goodwill was not fully impaired being December at 31 Dukat and 2013, Mayskoye, management has performed an analysis whether as to a reasonably possible adverse change any the assumptions of to key would lead an impairment. to The following scenarios were considered as reasonably possible and were used for this sensitivity analysis: • • • Impairment losses recognised in the year Translation effect Translation At December 31 – Total Total (549)
8,758 9,457 8,847 5,629 3,245 47,227 10,270 30,919 (11,929 ) (12,795) (30,875) (23,493) 131,479 (53,608) 131,466 US$’000 US$’000 356,817 434,384 (125,129) (351,316) ( 287,343 ) (921,663) (203,637) (236,372) (592,966) 1,901,974 2,094,742 3,016,405 2,205,732 2,798,698 2,253,290 – – – – – – – – – – – – – (7) (42) 2,952 ( 2,105) (1,828) Capital Capital (3,537) 37,9 59 (3,544) 26,720 ( 20,154) 511,427 511,427 US$’000 US$’000 157,561 154,017 163,544 353,622 353,622 (214,948) (345,964) in-progress in-progress construction construction – – – 6 752 160 389 (165) (218) (1,114) (7,187) 2,339 assets 2,299 3,804 (1,897) ( 6,186 ) (9,521) (1,938) assets (6,627) (6,455) (6,964) 71,315 87,46 4 13,216 18,756 73,633 98,327 91,279 64,764 (16,149 ) (24,694) (26,515) US$’000 US$’000 Non-mining Non-mining 6 (549) 8,705 3,245 5,469 assets assets 8,369 Mining Mining 27,115 10,264 44,894 96,095 (10,815) (19,219) (12,535) (45,325) (23,328) US$’000 US$’000 143,437 436,721 245,287 186,007 ( 281,157) (114,984) ( 335,167) (161,806) (226,851) (568,272) (886,935) 2,261,824 1,224,359 1,559,526 1,693,552 1,543,404 2,430,339 – – – – – – – – – – – – – – – 1 6,352 assets ( 7,6 5 4 ) (4,670) assets 78,138 (4,669) 94,873 94,873 66,077 84,925 84,925 (14,713) 60,355 (74,723 ) 128,521 US$’000 US$’000 337,226 332,557 Exploration Exploration and evaluation and and evaluation and Accumulated depreciation, amortisation depreciation, Accumulated Acquired on acquisition on Acquired Translation to presentation currency presentation to Translation Disposals Balance at December 31 2013 Eliminated on disposal of subsidiary of disposal on Eliminated Additions liabilities decommissioning in Change Transfers December31 2013 Eliminated on disposal of subsidiary of disposal on Eliminated Impairment recognised in profit and loss value book Net 1 January 2012 Translation to presentation currency presentation to Translation Translation to presentation currency presentation to Translation Balance December at 31 2012 Disposals December31 2012 Balance at December 31 2013 Disposals Translation to presentation currency presentation to Translation Balance December at 31 2012 period the for Charge Eliminated on disposal of subsidiary of disposal on Eliminated 19. Property, plant and equipment and plant Property, 19. See 21. Note Cost Balance at 1 January 2012 Impairment of investment in associate The Group has fully written off its investment in JSC Ural-Polymetal as the carrying values the of exploration assets this associate holds are not considered recoverable. In management’s view there are no indicators a reversal of December as at 31 2013. Production costs Production Production costs are based on management’s best estimates over the life the of mine, and reflect pastexperience. 18. Impairment losses continued Impairment losses 18. Proved and probable reserves and mineral resources Production volumes are derived from the detailed long-term life mine of plans which are based on JORC proven and probable reserves and certain mineral resources (using a relevant resource-to-reserve conversion ratio) at the end the of period. Eliminated on disposal of subsidiary of disposal on Eliminated Disposals Charge for the year the for Charge Balance at 1 January 2012 Additions Transfers assets of group of acquisition on Acquired Change in decommissioning liabilities decommissioning in Change Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 138/139 – 2012 2012 2012 2012 1,475 3,813 5,469 4,054 (1,098) 14,811 (3,660) 12,970 40,794 48,894 (14,651) restated 64,811 (10,237) 21,206 21,206 62,267 62,267 (36,975) 36,597 30,268 30,268 98,864 98,864 US$’000 US$’000 US$’000 US$’000 US$’000 141,878 297,4 52 543,169 840,621 285,006
JSC Ural- JSC Ural- Polymetal Polymetal 31 December 31 31 December 31 31 December 31 31 December 31
– –
2012 2013 (706) 2012 2013 1,017 7,334 3,247 9,117 (1,658) 13,731 11,255 68,609 (18,150 ) 22,853 11,257 (19,844) 53,142 (44,347) 41,885 41,885 77,848 24,881 US$’000 US$’000 US$’000 US$’000 182,269 427,152 727,144 133,037 133,037 299,992 299,992 December 31 December 31 31 December 31 31 31 December 31 – Nil 2013 2013 6,807 6.00% 8.00% 8.00% (5,492) Polygon Gold Inc Gold Polygon Inc Gold Polygon (2,340) 14,617 78,908 (16,508) (30,352) (38,855) US$’000 US$’000 3.5%-6% Interest rate Interest 31 December 31 31 December 31
Group’s shareGroup’s of net loss Loans extended investments to in associates Net loss Employees The following tables summarise the aggregate financial position shareandof the net lossesGroup’s of the investments in JSC Ural-Polymetal and PolygonGold Inc: Polygon Gold Polygon Loans extended third to parties Ore stock piles Inventories expected to be recovered after twelve months parts spare and Consumables Revenue assets Non-current receivable accounts and loans 22. Non-current receivable accounts Long-term Total 23. Inventories Current assets Current non-current inventories Total Inventories expected to be recovered in the next twelve months Current liabilities Current Equity Ore stock piles Non-current liabilities Non-current Copper, gold and silver concentrate silver and gold Copper, Total metal inventories metal Total parts spare and Consumables Work in-process Metal for refinery Doré Total
value
19,315 10,507 Carrying 29,822 29,822
US$’000
– % 33.3
Voting power 42.65 December31 2012 – value 15,651 15,651 Carrying US$’000 – % 49.9 42.65 power Voting 31 December 2013 in the business 49.9%. to In management’s view it continues hold to significant influence in JSC Ural-Polymetalhowever it does not have the ability exercise to control. As a result an of impairment review performed December the additional at 31 2013 investment in JSC Ural-Polymetal was also written off, as the project development isat an early stage and a new NPV estimate for the assets cannot be preparedTherefore at this and stage. consistently with the assumptions used as at 30 June 2013, full investment in Ural-Polymetal is written off. On 29 October 2013 the GroupOn October acquired 29 2013 an additional interest 16% in JSC Ural-Polymetal for $2.5 million, taking its share open pit mine and a processing plant. As a result an of impairment review performed the investment as at 30 June 2013, in JSC Ural-Polymetal was written off nil to (see 18). Note Equity investment in JSC Ural-Polymetal JSC in Equity investment 1 January theAt group held 33.3% JSC 2013 of Ural-Polymetal, a Russian entity which holds an operating copper and zinc The Group’s equityThe Group’s ownership in Polygon Gold Inc. has now decreased It continues 42.65%. to exercise to significant influence over Polygon. in cash, US$5 million which of was paid with US$3.0 million payable February 28 by 2013. On 7 June 2012, Polymetal soldOn its 230 of 7 June shares 2012, in Polygon Sibproekt to for consideration a total US$8.0 of million payable On 4 June 2012, Polygon’s share shares capital Polygon’s new shares the by issuance was an increasedOn affiliate to 4 June 471 of 2012, 1,571 of to Gazprombank OJSC (‘Gazprombank’) for consideration a total millionThe US$14.2 of proceeds paid in cash. from the offering will be used finance to Veduga the project and repay part debt. In addition,Polygon’s of Gazprombank hasexpressed an interest mine. a producing into Veduga develop to Polygon to financing project providing in in cash ordinary and 750 shares Polygon. of In addition, Sibproekt (‘Sibproekt’), LLC an unrelated local partner, provided a US$21 million loan Polygon to and received newly 100 issued Polygon shares for noThis consideration. resulted in Polymetal holding equity an initial ownership 81.8% in Polygon. Under the new shareholder agreement, Polymetal obtained one the of four board seats giving it significant Theinvestment influence. has been accordingly recognised as aninvestment in associate. On 14 May 2012, Polymetal sold 100% Amikan of May 2012, HoldingOn 14 Limited Polygon to in exchange for consideration US$20 of million The gain total on acquisition the of remaining interest million, in the joint comprising million venture was US$21.1 a US$12.7 revaluation fair to value previously of held interest and a bargain purchase gain US$8.4 of The bargain million. purchase gain resulted from AngloGold Ashanti Limited strategic decision exit to the Russian Federation. or liabilities. or On 7 February 2012, theOn Company 7 February acquired AngloGold’s 2012, 50% equity interest and debt investments in the various joint venture Veduga the owns which Limited, Holding Amikan was acquired company principal The 4). (Note Polymetal with held companies gold deposit in the Krasnoyarsk region the of Russian Federation, with other entities acquired not holding any material assets Polygon Gold Polygon Total (‘Tyner’) who initially held shares and 250 100 respectively is controlledTyner and in the new managed venture. Len by Homeniuk, a non-executive Director Polymetal of International plc. Equity investment in Polygon Gold Inc. Polygon Gold Inc. (‘Polygon’), a private shell was initially company, set up between Polymetal Enterprises and Tyner Inc. Ural-Polymetal JSC
An adverse change assumption in a key described above would not cause the aggregate carrying amount exceed to 20. Goodwill continued Each the of sensitivities above has been determined assuming by that the relevant assumption key moves in isolation, and without regard potentialto mine planchanges andother management decisions which would be taken respond to adverse to changes in existing management projections. 21. Investments21. in associates the aggregate recoverable amount the of Dukat and Mayskoye cash-generating units. Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 140/141 – 57
Total 2012 2,152 1,300 5,124
9,346 4,095 24,515 14,571 27,9 67 12,549 127,120 18,622 18,622 US$’000 US$’000 708,736 708,736 863,823 100,000
31 December 31
711
170 2013 7,712 2,152 7,24 3 8,919 18,795 15,932 12,364 11,293 32,821 65,567 619,612 114,955 US$’000 US$’000 100,000 485,862 485,862 Non-current 31 December 31 December31 2012 – – 589 9,172 6,859 8,583 5,306 12,165 Current 244,211 222,874 222,874 US$’000 – 660 Total 7,514 17,187 11,443 16,527 US$’000 518,957 575,000 575,000 500,000 1,111,144 – 258 7,624 7,882 3,757 11,443 US$’000 537,500 537,500 469,231 484,431 1,029,813 Non-current – – 31 December 2013 402 3,757 9,305 8,903 81,331 37,500 37,500 30,769 34,526 Current US$’000 – – – 8% 2012
3.1% 5.7% 4.4% 2.8% 2.8% 7.35% – – – – 2013 2013 7.5% 2.74% 2.24% 5.69% 4.90% 3.22% Fixed Fixed Floating Floating Floating Floating Floating Actual interest rate December at 31 Type of rateType
Total
RUB denominated Loans from related parties Euro denominated CAD denominated Euro denominated Total US Dollar denominated the Group has not recognised a bad debt allowance because there has not been a significant change in credit quality and the amounts are still considered be recoverable. to Such past due but not impaired receivables amounted to US$4.7 US$3.7 million December (2012: million).The as at 31 Group does 2013 not hold any collateral or other security over these balances nor does it have a legal right offset of against any amounts owed the by Group thecounterparty. to 25. Cash and cash equivalents Non-trade receivables disclosed above include those that are past due at the end the of reporting period for which (2012: 0.3% per annum) and 6.75%-7.15% for RUB denominated deposits with an average maturity 0.3% per annum)(2012: at inception and 6.75%-7.15% days). 15 days (2012: 15 of Borrowings 26. amortised cost: at Borrowings Total Unsecured Loans from third parties US Dollar denominated Bank deposits – RUB Bank deposits per December bear annum as at 31 interest for US dollars 0.2%-1.08% of 2013 denominated deposits loans Secured from third parties US Dollar denominated Bank deposits – foreign currencies foreign – deposits Bank Current bank accounts – RUB currencies foreign – accounts bank Current Other cash and cash equivalents Total Bank loans The Group has a number borrowing of arrangements with variousThese lenders. borrowings consist unsecured of and secured loans and credit facilities denominated in Rubles, US Dollars, Euro and Canadian Dollars. Where security is provided it is in form pledgeof revenue of from certain sales agreements. During the year ended the December Group 31 drew down million US$3,100 of a total 2013, and repaid US$2,887 million, a net drawdown US$213 of million. The Group secured new facilities in the year for amount a total US$975 of million with unrelatedThese parties. credit facilities are repayable between first andfourth quarter andquarter 2014 bear interest2018 of at a betweenrate Libor +2.35% +3.05%. Libor and
– –
Total 2012
4,717 5,417 2,765 4,000 4,000 4,000 4,000 (1,551)
11,792 24,948 24,948 59,508 US$’000 US$’000 109,147 2012 operating 107,596 107,596
segments
restated December Year ended 31 December 31 31 164 190 2013 Total 3,941 3,827 3,827 2,268 47,181 16,124 (2,655) 14,902 21,889 44,526 44,526 US$’000 US$’000 137,203 153,327 31 December 31 Total 16,124 US$’000 137,203 153,327 operating segments – 16,124 16,124 US$’000 Mayskoye – Varvara 19,301 19,301 US$’000 – Omolon 75,229 75,229 75,229 75,229 US$’000 Year endedYear 31 December 2013 – Dukat 11,954 11,954 US$’000 – 28,160 28,160 US$’000 Khakanja – Voro 2,559 2,559 US$’000
Total Prepaid expenses Prepaid parties related from receivable Accounts Copper, gold gold Copper, and silver concentrate The average credit period on sales gold copper, of and silver 30 days). concentrate days December (2012: was 25 at 31 2013 Non-trade receivables include amounts receivable from sale fuel of or operating lease machinery of The average contractors. to credit period for non-trade receivables 93 days). December was 36 days at (2012: 31 No interest is 2013 charged on short term receivables. non-trade no other customers who represent more the than of balance total 10% trade of receivables. No interest is charged on trade allowance receivables.The Group’s for doubtful debt relates its non-trade to receivables. There are no trade receivables either past due or impaired December (31 December US$nil). as at 31 2013 2012: Trade receivablesTrade mainly JSC relate Varvarinskoye to for their sales provisionally of priced copper and gold concentrate, and CJSC to Magadan Silver and Albazino Resources for their Ltd sales provisionally of priced silver concentrate. Of the trade receivables million)There are is US$47.0 million due balance from US$12.5 December one (2012: customer. as 31 of 2013, Non-trade receivables Non-trade of US$153of million as a result decline of in gold, silver and copperThe prices. assumptions key used December as at 31 2013 receivables trade Other Receivables from provisional copper, gold and silver concentrate sales concentrate silver and gold copper, provisional from Receivables 24. Trade and other24. receivables The amount inventories of held at net realisable million December value is US$100.7 at 31 (31 December US$7 2013 million). 2012: In addition, during the year ended December the Group 31 wrote-down US$4.6 2013 million US$5.6 costs of (2012: million) During the year ended December the Group 31 provided 2013 for obsolete consumables and spare parts inventory in the amount million US$10.7 of (year ended December reversal 31 US$3.3 of 2012: million). Write-downs metal of inventories net realisable to value were recognised during the year ended December in amount 31 2013 in determining net realisable value inventoriesof (including the commodity price assumptions) were consistent with the assumptions used in the impairment review goodwill of and non-current assets (see 18). Note in Omolon which did not significantly enhance thevalue of the ore stock piles. Short-term loans provided employees to Short-term loans provided equity to method investments After the related tax credit US$30.7 of million, the post-tax impairment charge million. is US$122.6 Ore stock piles
23. Inventories continued Write-downs of metal inventories net to realisable value During the year ended the December Group 31 recognised 2013, the following write-downs net realisable to value its of metal inventories due low content to precious of metals and metal price decline (see 18): Note Total tradeTotal andother receivables Total Less: Allowance for doubtful debts Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 142/143
2012 8,812 2,702 1,832 4,278 4,278
US$’000
31 December 31
2013 9,069 2,831 3,904 2,334 US$’000 31 December 31 million). million).
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets liabilities;or 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; and 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). Forward sale commitments The Group has certain physical gold andsilver forward sale commitments which are priced at the prevailing market price, calculated with reference theLBMA to or LME gold price, which are accounted for as executed as the Group expects to and has historically physically delivered these into contracts. Operating leases: Group as a lessee The land in the Russian Federationand Kazakhstan on which production the Group’s facilities are located is owned 29. Commitments contingencies29. and Commitments commitments Capital budgetedThe Group’s capital expenditure commitments December amountedas at US$22.3 31 to 2013 million US$37 (2012: The Group leasesthe by state. this land through operating lease agreements, which expire in various years through 2058. to Future minimum lease payments due under non-cancellable operating lease agreements at the end the of period were asfollows: Total Due within one year Contingencies Taxation Russian tax, currency and customs legislation is subject varying to interpretations, and changes, which can occur frequently. Management’s interpretation such of legislation as applied the transaction to and activity the of companies the of Group may be challenged the by relevant regional and federal authorities and as a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open review to the by authorities in respect taxes of for three calendar years preceding the year Under review. of certain circumstances reviews may cover longer periods. the Group has been and 2013 During involved in a number 2012 litigations of in Russia and in Kazakhstan. See 16 Note for details these of cases and their outcomes. In addition the cases to detailed management within 16, Note has identified exposurea total (covering taxes and related interest and penalties) US$22.3 of million in respect contingent of liabilities at fair value, grouped Levels into 3 based 1 to on the degree which to the fair value is observable as follows: • • • From one five to years Thereafter US$3 (2012: accounting value Fair 30. The following table provides an analysis financial of instruments that are measured subsequentto initial recognition –
2012 2012 2012 2,970 3,873 3,621 3,245 2,544 5,086 (1,479) 3,808 3,808 57,6 92 81,331 54,463 66,693 11,978 40,851 64,238 64,238 US$’000 US$’000 US$’000 403,814 306,773 253,904 312,218 312,218 191,343 191,343 1,111,144 2-22 years 2-22 3.74%-6.9% 5.67% -7.21% 31 December 31 31 December 31 – 2013 (901) (549) 2013 2013 1,814 3,693 6,418 (1,064) (4,322) 66,693 65,364 41,856 41,856 13,033 13,033 56,667 US$’000 US$’000 117,974 2-19 years 2-19 4.12%-5.77% 31 December 31 31 December 31 5.78%-8.43%
Discount rates Inflation rates dates closure mine Expected Closing balanceClosing Effect of unwinding of discount Amounts paid in the year effect Translation Trade payablesTrade 28. Trade payables28. and accrued liabilities The Group does not hold any assets that are legally restricted for purposes settling of environmental obligations. Rehabilitation liabilities Rehabilitation The principal assumptions used for the estimation environmental of obligations wereas follows: mining of phase production arises on which obligation environmental the of increase the to relate expenses Rehabilitation activities. During the year ended December rehabilitation 31 2013 expenses amounting million) US$0.3 to US$1.1 million (2012: were removed from cost production of and capitalised through the application IFRIC of (see 20 35). note Opening balanceOpening 27. Environmental obligations Environmental 27. Environmental obligations include decommissioning and land restoration costs and are recognised on the basis existing of follows: as plans business project In 2013, the average creditThere periodIn 2013, days). was no interest for payables charged 51 was 34 days on (2012: the outstanding budgeting include which place, in policies management financial risk has Group The period. credit the during balance payables and analysis cash of flows and payment schedulesto ensure that all amounts payable are settled within the credit period. Total TheThe Group table complied below summarises with its debt covenants maturities andthroughout 2012. borrowings: of 2013 December31 2014 December31 2015 December31 2016 December31 2017 December31 2018 December31 2019 December31 2013 Year ended continued continued Borrowings 26. the December Group 31 hadAt undrawn 2013, borrowing facilities million (31 December US$913 US$1,324 of million). 2012: Decommissioning liabilities recognised in PPE in recognised liabilities Decommissioning Changes in estimates for the year: statement income in recognised liabilities Decommissioning Dividends payable (Note 17) liabilities Accrued liabilities Labour Total Total Other payables Other Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 144/145
2012 2012 2012
14,811 25,276 18,622 59,508 68,046 48,088 (2,830) 59,508
141,029 191,343 US$’000 US$’000 US$’000 863,823
1,148,488
31 December 31 31 December 31 31 December 31 –
Year ended 2013 2013 2013 15,523 14,902 25,797 (9,481) 65,567 63,085 22,853 14,902 129,119 US$’000 US$’000 US$’000 1,111,144 1,189,752 31 December 31 31 December 31 31 December 31
of loss loss of location Location recorded Revenue in Income Accounts Statement receivable Consolidated balance sheet balance
Total financial assets financial Total liabilities Financial FVTPL at liabilities Financial liability consideration Contingent amortised cost at liabilities Financial Borrowings Non-current loans and receivables and loans Non-current The capital structure the of Group consists net of debt(borrowings as detailed offset in 26 Note cash by and bank balances as detailed in 25) and Note equitythe of Group (comprising the Stated Capital account, reserves andretained earnings as detailed in 32. Note The Group is not subject any externally to imposed capital BoardThe requirements. reviews Group’s the capital structure with each class capital. of instruments financial categories of Major principalThe Group’s financial liabilities comprise borrowings, derivatives, finance lease liabilities, trade otherand payables. The Group has various financial assets such as accounts receivable, loans advanced and cash and cash equivalents. of theof Group on a semi-annual basis. As part the this of Boardreview, considers the cost capital of and the risks associated Trade andTrade other payables Dividends payable Dividends Receivable from provisional concentrate sales concentrate provisional from Receivable sales concentrate provisional from Receivable Financial assets Financial Financial assets at FVTPL sales concentrate silver and gold copper, provisional from Receivables equivalents cash and cash including receivables, and Loans equivalents cash and Cash and other payablesTrade exclude employee benefits and social security. The carrying values cash of and cash equivalents, trade and other receivables, trade and other payables and short-term debt recordedat amortised cost approximate their to fair values becausethe of short maturities these of The instruments. estimated fair long-term value the debt, of calculated Group’s using the market interest available rate the Group to December as at 31 2013, million (see 26). million, Note and Carrying the carryingis US$1,017 values value the of December is US$1,111 as at 31 2013 other long-term loans provided related to parties approximated December December and as 31 their at 31 to 2012 2013 Trade andTrade other receivables values. fair The main risks arising financial from the Group’s instruments areforeign currency and commodity price risk, interest rate, liquidity risks. and credit theAt end the of reporting period, there are no significant concentrationsof credit riskfor receivables designated at FVTPL. The carrying amount reflected above represents maximum the Group’s exposure to credit riskfor such receivables. instruments financial Derivative Presented below is a summary derivative the of Group’s contracts recorded on the consolidated balance sheet at fair value. Total financial liabilities financial Total 53 54 Total
(621) Total 2012 4,717 (1,838) 34,232 59,508 14,902 25,276 25,276 (25,276) 22,290 (15,523) US$’000
31 December 31
– – – 2013 (294) Level 3 Level 3
(8,131) (1,328) (25,276) (25,276) 15,523 25,276 (15,523) (15,523) US$’000 31 December 31 – – . US$’000 US$’000 Level 2 Level 2 59,508 59,508 14,902 14,902 December31 2012 31 December 2013 – – – – – – Level 1 Level 1 2013: million). December Total Settlement Change in fair value, recognised in the Income Statement effect Translation Additions
Receivables from provisional copper, gold and silver concentrate sales concentrate silver and gold copper, provisional from Receivables The fair value receivables of arising from gold copper, 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 During the reporting periods, there were no transfers between Level 1 and Level 2. The table below sets forth a summary changes of in the fair Level value 3 financial the of Group’s liabilitiesfor theyear Receivables from provisional concentrate sales concentrate provisional from Receivables considerationContingent liabilities In 2008, the Group recorded a contingent consideration liability the of shares related the acquisition to in JSC Omolon 98.1% of Gold Mining Company (Omolon).The fair value the of contingent consideration liability was determined using a valuation model which simulates expected production gold of and silver at the Kubaka mine and future gold and silver prices estimate to future Thisrevenues liability Omolon. of is revalued at each reporting date based on 2% the of life mine of revenues with the resulting gain or loss recognised in the consolidatedThe income liability statement. recognised million December was US$15.5 at 31 2013 US$25.3 (2012: for the particular metal. As such, these receivables are classified within Levelof the 2 fairvalue hierarchy. 31 ended The directors consider that a reasonably possible change in a valuation assumption would not have a material effect Commodity forward contracts The Group enters forward into contracts for the physical delivery metals of which will be priced according the prevailing to London Bullion Market Association or London Metal policy ExchangeThe enter is Group’s not to fixed into priced index. The forwardcontracts. sales contracts qualify for the normal purchase/sales exemption use’ or ‘own for accounting on Semchenskoye acquisition Zoloto (see 4 for Note further details). Group. the on purposes and are outside the scope IAS of 39 Financial Instruments: Recognition and Measurement activities management Risk 31. Capital management The Group manages its capital ensure to that entities in the Group will be able continue to as a going concern while maximising the return stakeholders to through the optimisation the of debt and equity overallThe strategy Group’s balance. remains from years. prior Additions in the year ended represent December31 the contingent 2012 consideration payable the by Group Opening balance Receivables from provisional concentrate sales concentrate provisional from Receivables 30. Fair value accounting continued the December Group December and 31 held 31 At the following 2012 2013 financial instruments: Contingent consideration liability consideration Contingent Contingent consideration liability consideration Contingent Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 146/147 Total 2012
9,737 Stated capital
74,624
13,423 36,259 68,046 account
923,155 191,343 US$’000
US$’000 1,576,123 1,664,170 1,566,386 1,218,803 31 December 31
– Total 2013 Stated capital number 63,085 63,085 account 20,301 of shares 520,422 US$’000 775,000 5,491,661 1,302,767 1,219,381 382,685,782 31 December 31 383,206,204 389,472,865
– – 2,192 8,130 5 years 5 10,322 More than – – 16,940 1-5 years 1-5 1,113,225 1,096,285 1,096,285 – 1,169 3,331 94,772 99,272 3-12 months – – 20,194 59,754 79,948 3 months Less than Less Contingent consideration Contingent Total Borrowings Accounts payable and accrued expenses Accounts receivable are regularly monitored and assessed and where necessary an adequate level provision of is maintained. accountsTrade receivable are December December represented and 31 at 31 provisional by 2012 2013 gold copper, and silver concentrate sales transactions. A significant portion trade accountsof the Group’s receivable is due from reputable export trading companies. With regard other to loans and receivables the procedures acceptingof a new customer include checks a security by department and responsible on-site management for business reputation, licences and certification, creditworthiness and liquidity. Generally, the Group does not require any collateral be pledged to in connectionwith its investments in the above financial instruments. Credit limitsfor the Group as a whole are not set up. The credit risk on liquid funds is limited because the counterparties are banks with highcredit-ratings assigned international by credit-ratingThe agencies. major financial assets at the balance sheetother date than trade accounts receivable presented are cashin 24 and Note cash equivalents December US$65.6 of at 31 million). 2013 US$18.6 million (2012: Liquidity risk Liquidity risk is the risk that the Group will not be able settle to its liabilities as they fall due. liquidityThe Group’s position is carefully monitoredThe and Group managed. manages liquidity risk maintaining by detailed budgeting, cashforecasting processes and matching the maturity profilesof financial assets and liabilities to help ensure that it has adequate cash available meet to its payment obligations. The following tables detail remaining the Group’s contractual maturity for its financial liabilities with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flowsof financial liabilities based on the earliest ondate which Thethe tables Group can include be required both interest pay. To theextent to and that principal interest flows are cash flows. floating the undiscountedrate, amount is derived from interest curvesrate at the endof the reporting The contractual period. maturity is based on the earliest date on which the Group may be required pay. to Presented below is the maturity financial profileof the Group’s liabilities 31 December as at 2013: Issue of shares acquire to Svetlobor Balance at 1 January 2012 Retained earnings Reserves available for distribution shareholders to are based on the available cash in the CompanyThe ability under Jersey law. distributeto cash the up Company to from the Russian and Kazakh operating companies will be based on the statutory historical information each of stand-alone which entity, is prepared in accordance with Russian or Kazakh accounting standards and which differs slightly from IFRS. Russian legislation identifies the basisof distribution as accumulated current profit.However, legislation and other statutory regulations dealing with distribution rights are open legal to interpretation; consequently, actual distributable reserves may differ from the amount accumulated of profit under Russian statutory accounting rules. Special dividend payable dividend Special earnings retained and account capital 32. Stated the December Company’s issuedAs at 31 share 2013, capital ordinary consisted 383,206,204 shares 389,472,865 of (2012: ordinary shares) no of par value, each carryingThe Company does one not hold vote. any shares in treasury none). (2012: The ordinary shares100% reflecttotal of the issued share capitalof the Company. The movements in the Stated Capitalaccount inthe year were as follows: Issue of shares acquire to Maminskoye Issue of shares acquire to Olcha Balance at December 31 2013 Balance December at 31 2012 5 31
2012 2012 8,570
(4,979)
39,938 39,938 (93,453) US$’000 US$’000
1,062,427
1,022,458
31 December 31 31 December 31
Liabilities (107) 720 2013 2013 (1,786) (3,637) 25,883 US$’000 US$’000 (106,524) 1,126,407 1,099,804 31 December 31 31 December 31 79 99 2012 78,722 78,544 US$’000 31 December 31 Assets 99 119 2013 60,742 60,524 US$’000 31 December 31 The Group’s sensitivityThe Group’s interest to rates has increased during the current period mainly due the increase to in variable rate Interest rate risk The Group is exposed interest to risk rate because entities in the Group borrow funds at both fixed and floating interest rates. exposureThe interest Group’s to rates on financial assets and financial liabilities are detailed in the liquidity risk section For floating liabilities,rate the analysis is prepared assuming the amountof the liability outstanding at the endof the reporting period was outstanding for the whole period. basis A 100 point increase or decrease is used when reporting interest risk rate internally management key to personnel and represents management’s assessment the of reasonably possible change If interest rates had been basis 100 points higher/lower and all other variables were held constant, profitfor the theyear Group’s ended December would have decreased/increased 31 2013 million).This US$9.8 by is mainly attributable US$7.7 million (2012: exposure the interest Group’s to to rates on its variable borrowings. rate Credit risk Credit risk is the risk that a customer may default or not meet its obligations the Group to on a timely basis, leading financial to financialThe Group’s losses instruments the Group. to that are potentiallyexposed to concentration of credit risk consist primarily cashof and cash equivalents and loans and receivables. at the time of shipment. Theat the provisional time shipment. of prices are finalised in a contractually specified future period (generally to threeone months) primarily based on quoted LBMA or LME prices. Sales subject final to pricing are generally settled in a subsequent The forwardmonth. price is a major determinant recorded of revenue. The risk is managed the by Group maintaining by an appropriate mix between fixed and floating The Group rate borrowings. does not currently hedge its exposure interest to risk. rate thisof note. in interest rates. debt instruments. Provisionally pricedProvisionally sales Under a long-established practice prevalent in the industry, gold copper, and silver concentrate sales are provisionally priced Profit or loss (RUBto US Dollar) The table below details sensitivity the Group’s changes to in exchange which rates 10% by is the sensitivity used rate of theof individual Group entities were December December as and follows: 31 at 31 2012 2013 Total Currency risk is monitored on a monthly basis performing by a sensitivity analysis foreign of currency positions in order verifyto that potential losses are at an acceptable level. the by Group for internalThe analysis analysis. was applied monetary to items denominated in respective currencies at the reporting dates. Profit or loss (RUBto GBP) Profit or loss (KZTto US Dollar) Dollar US
The carrying amounts monetary of assets and liabilities denominated in foreign currencies other than functional currencies The Group does not use derivative instruments currently to hedge its exposure foreign to currency risk. continued activities management continued Risk 31. Foreign currency and commodity price risk In the normal course business of the Group enters transactions into for thesale its of commodities, denominated in US Dollars. In addition, the Group has assets and liabilities in a number different of currencies (primarily Russian Rouble and Kazakh Tenge). As a result, the Group is subject transaction to and translation exposure from fluctuations foreignin currencyexchange rates. Euro GBP Profit or loss (RUBto Euro) Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 148/149 264 836 2012 2012 2012 9,172 2,152 4,717 2,016 2,981 1,500 2,454 5,469 3,035 3,680 11,792 17,261 27,9 67 27,6 82 16,643 US$’000 US$’000 US$’000 466,250
31 December 31 December 31 31 December 31
– 34 164 190 242 399 996 Year ended Year ended 2013 2013 2013 1,740 1,017 7,882 1,207 1,866 9,305 2,565 17,187 81,641 12,359 13,983 US$’000 US$’000 US$’000 31 December 31 December 31 31 December 31 0.79% for for the the0.79% First Second date, 1.24% date Nil 40% for the2.6 First for date, 3.6 the Second date 16.97
Accounts receivable from related parties related from receivable Accounts Total loans provided by related parties related by provided loans Total Interest receivable from related parties related from receivable Interest Short-term loans provided by Nomos-Bank by provided loans Short-term Nomos-Bank by provided loans Long-term Long-term loans provided equity by method investments Total loans provided to related parties related to provided loans Total Risk free rate yield dividend Expected volatility Expected Expected life, years Fair value per share (US Dollars) of the alsoof Company, previously held a substantial interest) and equity method investees as presented in tables below. Nomos-Bank ceased meet to the definitionof a related partyFebruary 27 from to duechanges 2013 in its shareholder structure and composition its of Board Directors. of However in line Related with IAS Party 24 Transactions, deposits or borrowings taken out with Nomos where terms were agreed prior this continue to date, be recognised to as related party transactions. Carrying values other of long-term loans provided related to parties December December and as 31 at 31 2012 2013 approximate their fair values. Details the of significantterms of the loans providedby related parties are disclosed26. in Note The amounts outstanding at the balance sheet dates are unsecured and expected be settled to in cash. No expense has been recognised in the reporting period for bad or doubtful debts in respect the of amounts owed related by parties. All trade payable and receivable balances are expected be settled to on a gross basis. The remuneration directors of and other members management key of personnel during the periods was as follows: Share-based payments 34. Related parties Related parties are considered include to shareholders, affiliates, associates, jointventures and entities under common ownership and control with the Group and members managementkey of personnel. In the course itsof business the Group entered various into transactionswith Nomos-Bank (an entity in which Alexander Nesis, a significant shareholder parties transactions related from with Income Nomos-Bank to sales from Revenue Outstanding balances or owed from to related parties December are presented at 31 below: 2013 Short-term loans provided equity to method investments Interest income on deposits placed with Nomos-Bank with placed deposits on income Interest income Other Expenses parties transactions related from with Interest expense on loans provided Nomos-Bank by Long-term loansprovided equity to method investments Purchases from associates from Purchases Short-term benefits of Board members Board of benefits Short-term benefits employee Short-term benefits Post-employment
2012
Number
31 December 31 382,705,692 382,705,692 Year ended 2013 Number 31 December 31 387,932,387 387,932,387 is equal the market to price JSC of Polymetal’s underlying Global Depositary Receipts (GDRs) his assumption is estimated using historical trends executive of Director and employee turnover. Expected volatility has been estimated based on an analysis the of historical stock price volatility The average expected life was based on the contractual term the of option years. 3.6 of As the Plan has Expected forfeitures. T at the grant date. Risk-free interestThe risk-free is rate based rate. on US Treasury zero-coupon issues with a remaining term equal the to expected life assumed at the grant. date of As the Group typically only grants awards senior to employees and the turnover for rate such employees is minimal, the Group has estimated expected forfeitures be 5%. to Estimated forfeitures are adjusted over the requisite service period the extentto actual forfeitures differ or are expected differ to from such estimates. Changes in estimated forfeitures are recognised in the period change of and impact the amount expense of be recognised to in future periods. Expected volatility. of theof JSC Polymetal GDRs when from February the JSC Polymetal GDRs 2007, became publicly traded. Expected life. years vestinga 2.6 condition and the participant may exercise their right redeem to shares within one year after vesting occurs, the Group used years the expected 2.6 term for the first stageof the Monte-Carlo simulation (the First date) and years 3.6 for the second stage (the Second date). stock common of value Fair Weighted average number of outstanding common shares after dilution be recognisedto in 2014. The fair value the of awards granted during the year ended was December estimated 31 using a two–stage 2010, Monte-Carlo The fair valuemodel. determined was then recognised on a straight-line basis over the vesting period. Use two-stage of Monte- Carlo option pricing requires management make certainto assumptions with respect selected to The model following inputs. assumptions were used determine to the grant date fair value: • The outstanding LTIP awards at 31 December 2013 and 2012 representThe outstanding December anti-dilutive and awards 2012 at 31 LTIP potential 2013 ordinary shares with respect Weighted average number of outstanding common shares Both basic and diluted loss/earnings per share were calculated dividing by loss/profitfor theyear attributableto equity holders 32. Stated capital account and retained earnings continued earnings retained and account capital 32. Stated Weighted average number of shares: Diluted loss/earnings per share The Group had potentially dilutive securities, namely equity-settled the Group’s share appreciation plan, which was established (seeduring 33). Note 2010 theAt Annual General shareholders Meeting in June Incentive 2013, approved Plan the new (the Long-Term ‘New LTIP’). 33. Share-based payments The US$24 million share based payment expense $54 recognised (2012: million) during 2013 represents the final accrual Following significant gold and silver price declines the Company’s share in priceApril2013, fell below the minimum target price wouldsuch have been that no LTIPs awarded option to holders All recipients in June defer 2013. opted to their measurement and with it theperiod award vesting 2014 dates, to albeit sufficiently closeto the originalvesting suchdate June that the2013 share based payment expense had already been fully recognised in the Income Statement. of theof parent the by weighted average number outstanding of common shares before/after dilutionThe calculation respectively. theof weighted average number outstanding of common shares after dilution is as follows: earningsto per share for continuingTherefore, operations. basic and diluted earnings per share are the same for the current year. prior and made in respect the of Long-term employee incentive programmeThe options however (adopted vested in June in 2010). 2013 recipients had the option defer to their measurement period (though one by in year doing June to so 2014 the benchmark share price needed receive to the awards, would increase). The first grantof options LTIPunder expectedis theto take Newprovided place thatin theApril relevant2014 participants do not hold any Share-based options under the payment Old EIP. expenses in relation are therefore the New to expected LTIP • theAt grant the Group date, had not historically declared dividends and management believed the Company would not declare a dividend over the life the of option. As such, the expected annual dividend per share was therefore nil. Any subsequent change in dividend policy will be taken account into when valuing options granted in thefuture. • • • Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Financial statements 150/151
– – 267 2012
4,717 5,152 7,6 5 4 2,810 7,3 0 5 9,325 1,804 9,307 2,343 2,343 8,480 4,000 4,000 (4,657) (6,677) restated 39,150 10,709 26,787 14,262 14,262 54,279 54,279 (21,051) US$’000 (34,284) (34,629) 746,274 651,091 142,226 142,226 540,840 540,840 (188,724) (170,805) 31 December 31
– – –
Year ended 2013 1,524 8,746 1,089 9,503 2,528 2,246 2,340 (8,131) (2,850) 11,560 11,560 74,240 10,696 60,675 12,291 42,735 24,233 (10,744) US$’000 (35,921) (62,957) 201,105 (157,620 ) 237,533 461,667 153,327 625,629 (128,041) 31 December 31
7 4 12 12 12 15 18 18 21 23 30 Notes 11, 33
Decrease in prepayments suppliers to Increase in trade and other payables (Decrease)/increase in other taxes payable Change in contingent consideration liability consideration contingent in Change Impairment of non-current assets non-current of Impairment Cash generated from operations from generated Cash paid Interest Income tax paid activities operating cash generated by Net Decrease receivable in VAT Increase/ (decrease) in trade and other receivables Finance incomeFinance Loss on disposal of property, plant and equipment Change in allowance for doubtful debts Impairment of investment in associate compensation Share-based costs Finance Write-down metal inventory to net realisable value realisable net to inventory metal Write-down value realisable net to inventory non-metal of Write-down Write-down of exploration assets exploration of Write-down Increase in inventories before impairment Loss on disposal of subsidiaries of disposal on Loss Other non-cash expenses Foreign exchange loss/(gain) Share of loss of associates and joint ventures Gain on acquisition of remaining interest in joint venture Rehabilitation expenses Depreciation and depletion, recognised in statement of comprehensive income comprehensive of statement in recognised depletion, and Depreciation Mining taxes, penalties and accrued interest 36. Notes to the consolidated statement of cash flows Movements in working capital working in Movements Additions property, to plant and equipment US$3.7 of million and US$8.0 million during the year ended December 31 2013 Profit before tax respectively Decemberand 31 were acquired 2012, on deferred payment terms. Other non-cash transactions during the year ended December represents 31 issuance 2013 shares of amounting US$88to the million issuance (2012: million US$1.5 of shares of for the acquisition assets). of events Subsequent 37. A final dividend has been proposed in relationto theyear of 8 31 centscents perper shareshare) (2012: givingtotalexpected a million). US$119.0 (2012: million US$31.2 dividend of Adjustments for: 2012 2012 2012 2012 7,027 2,810 2,343 4,000 (4,000) 16,210 53,261 98,864 (82,760) 111,656 421,196 (restated) (restated) (restated) (restated) 651,091 142,226 US$’000 US$’000 US$’000 US$’000 613,746 840,621 428,223 539,879 428,223 (188,724) ( 3 97,076 ) (851,839) ( 397,076 ) (222,868) 2,205,732 Year ended Year ended Year ended 31 December 31 31 December 31 31 December 31 December 31 214 1,106 5,631 policy policy policy policy 1,263 (1,105) ( 2,108 ) (1,063) (6,822) (6,664) 27,0 62 33,726 28,168 27,062 27,062 27,062 10,366 56,332 26,848 23,360 30,954 45,006 (13,876) (19,235) (10,366) (46,269) US$’000 US$’000 US$’000 US$’000 (46,269) for change for for change for change for Adjustment Adjustment Adjustment Adjustment accounting for change in in accounting in in accounting in accounting in Year ended Year ended Year ended 2012 2012 2012 2012 6,813 3,873 stated) stated) stated) stated) (3,288) 14,366 14,947 54,366 (14,366) (75,938) 401,161 511,711 617,3 6 5 156,102 110,550 401,161 US$’000 US$’000 US$’000 US$’000 100,972 568,740 859,856 394,348 ( 875,199 ) (219,678) (216,204) (350,807) (350,807) 2,149,400 (previously (previously (previously (previously 31 December 31 31 December 31 31 December 31 December 31
Increase in inventories Rehabilitation expenses value realisable net to inventories metal of Write-downs value realisable net to inventories non-metal of Write-down
Cash generated from operations from generated Cash Purchases of property, plant and equipment Total comprehensive income for the period the for income comprehensive Total Non-current inventories Non-current inventories Current Cost of sales excluding write-downs of metal inventories net to realisable value Deferred incomeDeferred tax liability Income tax expense Increase in profit for the financial period Equity shareholders of the Parent Adjustments to the condensed consolidated income statement condensed income the consolidated to Adjustments Property, plant and equipment Adjustments to the condensed balance consolidated the sheet to Adjustments 35. Restatement The impact adopting of IFRIC on 20 the prior periods consolidated financial statements is presented in the tables below. Write-downs of metal inventories to net realisable value realisable net to inventories metal of Write-downs Adjustment for the following items: following the for Adjustment Depreciation activities investing in cash used Net Profit before income tax Adjustments the to condensed consolidated statement of cash flows Profit for the period Effect of translation to presentation currency presentation to translation of Effect Adjustments to the condensed consolidated statement of comprehensive income comprehensive condensed statement of the consolidated to Adjustments Adjustment for write-down non-metal of inventories net realisable to value relates write-down to US$5.6 of million costs in Omolon which did not significantly enhance thevalue theof work in-process, whichwas previously presented within increase in inventories. Translation reserve Translation Non-controlling interest Non-controlling Profit for the financial period Effect of foreign exchange rate changes on cash and cash equivalents Increase in retainedIncrease in earnings Financial statements Financial Notes to the consolidatedfinancial statements continued Annual Report 2013 Polymetal International plc Appendices 152/153 19 81 97 92 53 89 44 69 117 241 124 124 172 913 218 218 618 197 134 188 189 379 257 207 325 577 497 283 294 295 955 409 360 1,136 1,195 1,195 2,013 1,501 1,058 1,505 1,093 2,640 4,380 6,704 11,084 GE, Koz – – – – – – – – – 519 178 157 887 335 484 369 488 406 5,154 1,473 1,956 1,504 1,504 1,853 1,364 1,206 9,459 5,301 9,053 4,939 4,939 4,985 3,693 3,693 6,360 12,676 27,359 57,9 59 76,013 Ag, Koz 14,683 10,286 82,622 Content 133,972 202,603 119,981 13 10 47 10 76 61 87 26 20 45 65 65 68 114 113 119 119 171 172 172 471 913 618 123 242 144 166 166 201 227 230 295 955 290 409 306 1,186 1,186 2,013 1,501 1,058 1,093 7,684 2,959 4,725 4,725 Au, Koz 7.4 7.4 7.6 4.1 7.2 5.1 5.1 1.9 1.9 1.9 1.8 6.7 8.7 4.4 2.8 2.8 2.8 2.8 5.4 9.0 9.0 5.4 5.4 6.6 8.6 6.6 9.2 6.9 3.9 6.5 5.2 6.3 3.8 6.8 8.8 8.3 8.8 8.2 4.9 5.5 4.6 17.8 12.7 13.9 20.8 GE, g/t – – – – – – – – – 4 4 5 11 12 13 15 97 29 58 92 92 43 89 36 95 112 112 416 172 177 197 478 145 135 163 321 346 296 489 443 386 500 Ag, g/t Grade 1.1 7.2 5.1 1.7 5.1 8.1 1.0 1.0 1.6 1.0 1.9 1.9 1.9 1.5 1.5 1.3 2.4 2.8 2.8 4.0 4.0 2.5 9.0 4.5 5.0 0.9 5.9 0.9 4.3 8.6 4.3 3.9 0.8 4.2 3.9 5.2 6.3 8.8 11.3 15.7 13.0 18.4 Au, g/t 1 Kt 80 170 310 870 190 730 780 280 450 440 655 345 930 430 380 400 7,13 0 1,120 9,160 1,370 1,370 4,810 3,310 2,970 1,320 4,670 1,250 1,250 3,780 6,700 1,330 2,650 2,460 3,820 3,050 3,050 5,330 9,890 14,700 70,195 13,230 13,230 10,000 24,590 45,605 Tonnage 4 4 4 3 3 3 2 2 Ore reserves are reported in accordance with the JORC Code (2012). Discrepancies in calculations South. Voro Including are due rounding. to Estimate prepared by Polymetal Price: Au as = US$1,300/oz, at 01.01.2014. Ag = US$23/oz. Initial estimate prepared by Snowden Revised as at estimate 01.01.2013. prepared by Polymetal as at 01.01.2014. Voro Albazino Mayskoye Sopka Kvartsevaya Birkachan Birkachan Lunnoye Arylakh Oroch Tsokol Kubaka Tsokol Ozerny Maminskoye Tsokol Kubaka Tsokol Avlayakan 1 2 3 4 Ore reservesOre Proved Dukat Proved + probable Dukat Total proved Total Probable Dukat Ore reserves: precious metals deposits 1 January 2014 at as Avlayakan Ozerny Maminskoye Total provedTotal + probable Lunnoye Lunnoye Voro probable Total Tsokol Kubaka Tsokol Ozerny Maminskoye Avlayakan Arylakh Khakanja Arylakh Khakanja Albazino Sopka Kvartsevaya Birkachan Albazino Sopka Kvartsevaya Mayskoye Oroch Mayskoye Dalneye Oroch Dalneye Birkachan Birkachan 7,161 6,116 3,705 1,665 5,370 11,293 13,277 16,663 GE, Koz 8 15 61 76 69 77 69 145 Cu, Kt Content 90,107 39,613 Ag, Koz 77,585 39,532 38,053 117,198 129,354 219,461 870
2,534 4,950 3,950 3,404 8,900 Au, Koz 10,026 13,430 Kt 11,110 39,156 53,525 59,440 88,057 50,266 Tonnage 112,965 138,324 1 Mineral resources and ore reserves are reported in accordance with the JORC Code (2012). Mineral resources are in addition ore to reserves. Discrepancies in calculations are due to rounding. to due are calculations in Discrepancies Probable Proved + probable Measured + indicated + inferred 1 Proved Ore reservesOre Measured Mineral resources Mineral resources and ore resources reserves and Mineral 1 January at 2014 as Inferred Indicated Measured + indicated Appendices Reserves and resources 2014 1 January As at Annual Report 2013 Polymetal International plc Appendices 154/155 7 1 8 4 1 8 6 3 11 11 51 15 81 31 25 25 28 26 26 62 22 55 40 39 54 54 44 99 113 131 210 143 376 193 188 106 323 284 493 660 306 1,443 1,636 3,721 1,336 2,385 GE, Koz – – – – – – – – – 7 14 24 31 21 49 50 36 177 177 216 197 187 123 138 321 105 105 756 237 677 796 689 9,913 3,818 1,433 1,404 4,507 5,287 2,200 57,702 14,446 Ag, Koz 15,200 18,808 35,312 33,254 22,390 Content 9 4 9 1 5 3 1 4 8 5 3 2 2 17 14 16 76 31 31 61 79 25 42 23 77 20 59 46 55 53 53 39 44 65 30 99 138 193 188 751 493 306 1,443 1,636 2,754 2,003 Au, Koz 7.1 2.1 2.1 7.5 6.1 1.4 1.4 1.5 3.7 3.7 5.1 8.7 2.9 4.4 4.0 4.0 9.4 4.6 4.5 9.8 3.6 9.5 8.6 3.9 3.5 8.9 8.9 5.2 8.5 8.8 8.3 3.2 3.2 5.6 6.6 11.5 15.7 10.7 12.8 14.3 13.0 15.5 13.8 10.8 16.9 16.2 GE, g/t – – – – – – – – – 4 4 11 11 10 24 97 37 29 92 29 58 58 85 34 30 96 119 131 341 767 199 104 108 109 625 508 436 383 490 308 604 880 390 Ag, g/t Grade 2.1 2.1 2.1 1.7 3.1 1.4 1.4 1.0 1.9 1.9 1.5 1.3 1.3 1.2 1.2 2.4 8.7 2.6 2.5 4.6 5.4 2.2 2.2 4.5 3.4 3.0 3.0 4.8 6.0 0.8 5.3 9.2 3.3 8.9 5.2 8.8 8.3 15.1 12.4 12.6 14.6 15.3 10.3 Au, g/t Kt 10 10 10 70 50 40 40 50 40 40 30 80 90 90 90 110 410 510 150 180 180 160 420 100 230 450 350 340 930 980 660 800 800 1,170 1,150 1,150 1,190 2,130 1,750 1,090 2,360 9,930 6,300 11,080 1 14,450 20,750 Tonnage 8 8 8 3 3 3
4 4 4 2 2 Dalneye Oroch Birkachan Dalneye Voro Oroch Birkachan Birkachan Mayskoye Albazino Sopka Kvartsevaya Total measured + indicated + measured Total Total measured Total Voro Mineral resources Measured Dukat Maminskoye Mineral resources:Mineral 1 January precious metalsat 2014 as Sopka Kvartsevaya Oroch Sopka Kvartsevaya Tsokol Kubaka Tsokol Maminskoye Tsokol Kubaka Tsokol Avlayakan Arylakh Khakanja Lunnoye Lunnoye Total indicated Total Measured + indicated Dukat Tsokol Kubaka Tsokol Indicated Dukat Avlayakan Ozerny Ozerny Maminskoye Avlayakan Ozerny Lunnoye Khakanja Mayskoye Albazino Ozerny Arylakh Arylakh Khakanja Mayskoye Albazino 129 162 291 295 457 1,607 2,192 1,902 1,736 GE, Koz – – – 7.9 7.9 77.0 69.1 77.0 69.1 Cu, Kt – – – Content 7,4 8 5 9,373 7,485 9,373 Ag, Koz 16,858 16,858 – – – 225 991 225 991 1,216 1,216 Au, Koz 1.4 1.5 1.2 1.6 1.8 1.5 9.9 8.9 10.7 GE, g/t – – – 0.46 0.45 0.45 Cu, % – – – 1 Grade 519 572 623 Ag, g/t – – – 0.9 0.9 0.9 Au, g/t Kt 470 920 450 7,4 50 7,920 41,850 34,400 42,770 34,850 Tonnage 2 2 2 Cu grade only represents average grade of Float feed. Ore reserves of Float feed: Mt proved 1.7 and Mt probable. 15.5 Ore reserves are reported in accordance with the JORC Code (2012). Discrepancies in calculations are due rounding. to Total proved Total Probable Goltsovoye Varvara Total provedTotal + probable Varvara 1 2 Goltsovoye Ore reservesOre Proved Ore reserves:January 2014 ore deposits 1 at polymetallic as Total probable Total Proved + probable Goltsovoye Varvara continued Appendices Reserves and resources 2014 January 1 As at Annual Report 2013 Polymetal International plc Appendices 156/157 – 10 73 42 115 194 249 256 239 239 329 309
1,259 1,039
1,295 2,554 1,320 1,649 1,463 3,112
GE, Koz
– – – – – – 4.1 3.7 3.7 0.4 57.0 15.4 72.4 15.4 68.6 69.0 76.2 60.8 141.1 Cu, Kt 145.2
– – – – – – Content 513 2,434 4,220 6,654 4,220 13,742 11,248 17,9 02 11,761 Ag, Koz 13,229 13,229 15,663 19,883 31,644 31,644 – – – – – – – – – – 119 119 531 531 650 648 650 648 1,297 1,297 Au, Koz – 4.1 1.7 1.7 1.4 1.4 1.7 1.7 2.0 2.1 6.6 6.8 6.8 2.3 2.0 12.7 12.7 14.4 12.8 10.6 GE, g/t – – – – – – 0.42 0.49 0.46 0.44 0.44 0.56 0.35 0.34 0.34 1 Cu, % – – – – – – Grade 740 616 375 375 739 738 837 206 364 Ag, g/t – – – – – – – – – – 1.0 0.7 0.7 0.8 0.8 Ag, g/t – Kt 78 470 120 160 750 280 1,174 1,096 1,096 4,810 4,650 28,140 47,56 0 19,420 29,516 23,490 24,706 19,968 49,484 Tonnage 3 3 3 3 3 2 2 2 2 2 Geology and mineral resources – Roman Govorukha, Head Geologic of Modelling and Monitoring, MIMMM, years’ with 13 experience; relevant Mining and ore reserves – Igor Epshteyn, Head Mining of Process Department, FIMMM, with years’ 32 relevant experience; Concentration and metals – Igor Deputy Agapov, Director Science of MIMMM, years’ and with Technology, 16 relevant experience; relevant Environmental issues Kuleshova, – Tatiana Director for MIMMM, Ecology, with years’ 22 relevant experience. Mineral resources are reported in accordance with the JORC Code (2012). Mineral resources are additional ore to reserves. Discrepancies in calculations are due rounding. to Estimate prepared Prices: by Snowden Ag = US$13/oz, as at Cu 01.07.2011. = 220c/lb. 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 23.5 and tonnes 5.4 of ore respectively). Measured indicated + + inferred Goltsovoye Perevalnoye Varvara Total inferred Total Total measured Total Indicated Goltsovoye Total measuredTotal + indicated + inferred the mineral resources and ore reserves estimate is based: • • • depositsof under consideration and the activity to being undertaken qualify to as a Competent Person as defined in the2012 Edition the of ‘Australasian Code for Reporting Exploration of Results, Mineral Resources and Ore Reserves’ (JORC Code). All Competent Persons have given their consent the inclusion to in the report the of matters based on his (or her) 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$1300/oz; Ag = US$22.5/oz; Cu = US$7000/t. and has years’ more experience than 13 in gold, silver and polymetallic mining. He is a Member the of Institute Materials, of Minerals and Mining (MIMMM), London, and a Competent Person under the JORC Code. Listed below are other Competent Persons employed the by Company that are responsible for relevant research on which • All above mentioned Competent Persons have sufficientexperience that is relevantto the styleof mineralisation and types Mineral resources Measured Goltsovoye 1 2 3 statement Compliance This estimate was prepared employees by JSC of Polymetal Management Company and CJSC Polymetal Engineering, Resources Mineral the for responsibility overall assumes who Tsyplakov, Valery Mr by led Company, the of subsidiaries and Ore Reserves is the employedTsyplakov Report. full-time as the Mr Managing Director CJSC of Polymetal Engineering Varvara Mineral resources: polymetallic ore deposits as at 1 January 2014 resources:Mineral ore deposits 1 at polymetallic as Total indicated Total Measured+ indicated Goltsovoye Varvara indicated + measured Total Inferred Goltsovoye Varvara Perevalnoye Perevalnoye Varvara Perevalnoye Perevalnoye 8 7 1 4 11 11 51 12 29 58 54 69 30 30 30 99 717 717 713 713 132 154 776 776 250 233 555 302 660
1,475 1,475 3,615 1,980 4,062 3,569 9,830 13,551 GE, Koz
– – – – – – – – 19 47 23 49 55 39 39 69 177 150 105 237 337 544 544 368 1,598 3,798 4,556 3,590 3,590 11,791 11,434 Ag, Koz 10,001 27,852 26,991 33,254 85,554 Content 9 5 7 7 3 1 3 11 10 76 78 28 50 53 53 33 30 30 99 98 99 717 717 128 148 767 767 653 653 1,475 1,475 3,615 1,980 4,062 3,569 9,379 12,132 Au, Koz 7.7 7.0 2.1 7.8 4.1 4.1 3.1 1.4 1.9 1.9 6.7 6.7 2.4 2.4 8.7 4.0 4.9 9.9 9.9 4.8 5.9 5.9 9.8 3.9 4.2 8.9 4.7 5.2 8.3 4.5 17.6 11.7 13.1 10.1 14.6 16.9 13.2 GE, g/t – – – – – – – – 4 4 8 8 4 11 12 12 13 31 28 29 58 88 63 98 96 541 199 567 437 667 394 385 296 306 Ag, g/t Grade 2.1 2.1 7.5 4.1 4.1 8.1 1.4 1.0 1.9 1.9 1.9 1.9 0.7 2.8 4.9 9.9 2.2 2.2 3.0 4.8 0.9 3.6 3.9 3.9 5.8 5.8 3.3 6.5 6.5 5.2 10.1 12.6 13.7 15.5 16.3 Au, g/t Kt 10 70 20 50 50 30 80 90 142 142 130 100 220 790 550 200 460 360 800 continued 2,130 1,480 1,200 4,083 4,083 2,360 5,505 5,505 9,200 9,200 12,740 12,470 1 24,070 24,070 10,990 23,550 68,090 88,840 Tonnage 8 9 9 5 5 3 3 6 6 4 4 10 10 7 7 2 Estimate prepared g/t. COG = 1.0 by Mir Resources as at 07.07.2011. Estimate prepared COG = 3.0 g/t. by Snowden as at 01.07.2011. Estimate prepared COG g/t. = 2.0 by Snowden as at 01.07.2011. Initial estimate prepared by Snowden Revised as at estimate 01.01.2013. prepared by Polymetal as at 01.01.2014. Estimate prepared COG by Snowden (Au)The g/t. mineral as = 1.0 at 01.01.2012. resource estimate includes ore zone 2 where inferred mineral resources are estimated at: 840 Kt, Including Voro South. Voro Including Revaluation performed only for mineral resources of Anfisa and Olga zones Price:for open-pit Au = US$1,500/oz. mining. ZonesInitial Ekaterina estimate 1 andof mineral and 2, resources resources of Anfisa performed and Olga zones by Snowden (including as 01.08.2012. at Nadezhda)Estimate prepared for underground by Polymetal Price: mining as Au = US$1,500/oz, at 01.01.2014 remained Ag = US$26/oz. unchanged. Estimate prepared COG g/t. = 1.5 by Snowden as at 01.07.2011. grading g/t 4.0 Au, 49 g/t Ag, containing Koz 109 Au and Koz Ag. In 1,327 other parts of the deposit there are no silver mineral resources. Mineral resources are reported in accordance with the JORC Code (2012). Mineral resources are additional ore to reserves. Discrepancies in calculations are due rounding. to
Dalneye Oroch Birkachan Tsokol Kubaka Tsokol Avlayakan Albazino Sopka Kvartsevaya Tamunier Kutyn Oroch Arylakh Lunnoye Mineral resources Inferred Mineral resources:Mineral 1 January precious metalsat 2014 as 10 6 7 8 9 2 3 4 5 1 Tsokol Kubaka Tsokol Tamunier Maminskoye Voro Olcha Khakanja Lunnoye Arylakh Mayskoye Kirankan Ozerny Ozerny Birkachan Ozerny Mayskoye Kutyn Albazino Avlayakan Kirankan Svetloye Svetloye Total inferred Total Total measuredTotal + indicated + inferred Olcha Khakanja Measured+ indicated + inferred Dukat continued Appendices Reserves and resources 2014 January 1 As at Annual Report 2013 Polymetal International plc Appendices 158/159
a chemical test performed on a sample performed a on test chemical a in final useful form copper material mineralised which at grade minimum the can be economically mined and processed (used in the calculation of ore reserves) leaching with cyanide as the leaching agent tunnel underground inclined permanent a of any material determine to the amount cyanide in the presence of activated carbon. Gold is absorbed onto activated carbon in leaching with parallel slurry which in operation technological a means containing gold and silver is leached cyanide by presence the in subsequently and without initially onto absorption Gold carbon. activated of carbon starts only after preliminary leaching processing mineral of product semi-finished a containing separation) gravity or (flotation significantly more value per unit of weight than the for further processing to subject and ore substances other or metals of production leading from the surface an to ore body the share (percentage) of material below the cut-off grade that is extracted together and mining. during ore with mixed irretrievably leads dilution higher equal, being things other All lowerto grade in ore mined gold/ a of end-products traditional the of one silver mine; an alloy containing 90% in sum of gold and silver as well as of impurities 10% activity ultimately aimed at discovery Consists exploitation. reserves for ore of including analysis, and collection sample of geochemical and geophysical reconnaissance, etc drilling, trenching, surveys, ore-bearing which in operation technological a minerals are separated from gangue minerals of valuable metals contained in the sample the in contained metals valuable of silver equivalent silver gold a lined stainless-steel vessel in which a oxidation pressure of operation technological place takes slurry which in operation technological a containing gold and silver is leached by in the slurry based on variance in the interaction Particles water. with minerals different of of valuable concentrate are carried upwards with froth and collected for further processing for collected and froth with
Glossary terms of technical Assay Cu Cut-off grade Cyanide leaching Decline Carbon-in-pulp or CIP Concentrate Dilution Doré Exploration Flotation Ag AgEq Au Autoclave Carbon-in-leach or CIL Annual General Meeting Commonwealth of Independent States Union Soviet Former North the of Minorities Indigenous Reserves Committee Ore Joint Australasian company stock joint Association Market Bullion London Programme Incentive Long-Term applicable not organisation non-governmental meaningful not net present value metal group platinum pressure oxidation tonne per gram kilometres ounces thousand tonnes thousand annum per tonnes thousand metres ouncesmillion tonnes million annum per tonnes million g) troy ounce (31.1035 percentage points kg) (1,000 tonne tonnes per day Glossary Abbreviations AGM CIS FSU IMN JORC JSC LBMA LTIP NA NGO NM NPV PGM POX Units of measurements g/t km Koz Kt Ktpa m Moz Mt Mtpa Oz or oz pp t tpd k 71 71 81 61 61 79 57 77 59 85 84 66 66 60 60 60 Cu 121 177 100 0.64 0.36 0.36 k 58 60 Ag
2 Cyanidation+Merrill-Crowe process Primary ore with high copper content – conventional flotation flotation conventional – content copper high with Primary ore Cyanidation carbon-in-pulp Cyanidation Cyanidation+Merrill-Crowe process Cyanidation+Merrill-Crowe process Cyanidation+Merrill-Crowe process carbon-in-pulp Cyanidation leaching+carbon-in-colonHeap Cyanidation+Merrill-Crowe process process leaching+Merrill-Crowe Heap Cyanidation+Merrill-Crowe process Cyanidation+Merrill-Crowe process Cyanidation+Merrill-Crowe process process leaching+Merrill-Crowe Heap Conventional flotation Conventional Heap leaching+Merrill-Crowe process leaching+Merrill-Crowe Heap carbon-in-pulp Cyanidation Powder ore with high copper content Conventional flotation flotation Conventional Cyanidation+Merrill-Crowe process Cyanidation+Merrill-Crowe process Conventional flotation flotation Conventional Heap leaching+Merrill-Crowe process leaching+Merrill-Crowe Heap Ore processing technology processing Ore Ore processing technology processing Ore is the mineral extraction tax at applicable rate, recovery – life-of-mine expected recovery of the respective the metal in the is the mineral extraction tax at applicable rate, recovery – life-of-mine expected recovery of the respective the metal in the
3 1 is the evaluated metal content (copper, silver);
1 1 is the silver gold to equivalent conversionrate based on the difference in respective metals’ value using the following formula: is the silver gold to equivalent conversion rate that is calculated considering the difference in metals value issuing the following formula; k Me Royalty k Royalty 1 Due the to lack of gold in ore the ratio equals silver/gold ratio. This type of ore is currently not being processed, it is stockpiled and reflected only in mineral Silverresources. gold to equivalent conversion ratios were not recalculated deposits to that were evaluated in 2011-2012. Silvergold to equivalent conversion ratios were not recalculated deposits to that were evaluated in 2011-2012. Goltsovoye Svetloye Perevalnoye Tsokol Kubaka Tsokol Avlayakan Kirankan Khakanja Sopka Birkachan Dalneye Oroch Lunnoye Arylakh Dukat Silver/gold equivalent conversion ratios for precious metals ratios for deposits: conversion equivalent Silver/gold Deposit GE = Ag/k Where Reporting of metal equivalents metal Reporting of precious metals ratio for deposits conversion equivalent Silver/gold – treatment – (Au charge price/31.1035 k = ((Au Au)*(Royalty price/31.1035 – (treatment Au)/100 charge Au))*(recovery Au)/ Gold equivalent datais based on reporting metal of equivalent ratios provided Lead below. and zinc ore reserves and mineral resources have not been assessed in this report due immateriality. to processing technology applied. technology processing ((Ag price/31.1035 – (Ag price/31.1035 – treatment (Ag – charge price/31.1035 ((Ag Ag)*(Royalty price/31.1035 – (treatment Ag)/100 charge Ag))*(recovery Ag)); where Voro 1 2 3 Gold equivalent conversion ratios for polymetallic deposits: ratios for conversion equivalent Gold Deposit 1 polymetallic deposits ratio for conversion equivalent Gold GE = Me/k Where Varvara Ozerny Olcha processing technology applied. technology processing for silver (similar to the formula for precious metals deposits), for copper (%): copper deposits), for metals precious for formula the (similar to silver for Au%/change Au%)*(recovery charge Au)*(1-royalty Au%))/((Cu price-treatment charge Cu)* price/31.1035-treatment 100*((Au = k Cu%/recovery Cu%)*(recovery Cu%));(1-royalty where where continued Appendices Reserves and resources 2014 January 1 As at Annual Report 2013 Polymetal International plc Appendices 160/161
removed accessto ore in a mine of value after processing excavation which is carried out access to ore and prepare it for extraction (mining) significant with body ore narrow relatively a dimensions sharply and strike and dip boundariesdefined barren rock that must be mined and part of the original feed of a mineral devoid considered is that plant processing Underground development Vein Waste Tailings
the amount of pure precious metals, measured in thousands of ounces for gold, millions of copper, for tonnes and silver for ounces processing following produced measured a part mineable of economically the highest the represents which resource, confidence category of reserve estimate. factors other or mineralisation style of The could mean that proved reserves are not deposits some in achievable platinum the restorationof a site after mining or exploration activity is completed is activity exploration or the percentage of valuable metal in the ore that is recovered metallurgical by treatment product semi-finished or final the in a characteristic of gold-bearing ore denoting by it from gold recovering of impossibility leaching cyanide conventional measured a part mineable of economically the and/or indicated mineral resource. It takes into Appropriate losses. and dilution mining account assessments and studies have been carried out, modification and of consideration include and metallurgical, realistically assumed mining, by environmental, legal, marketing, economic, These factors. governmental and social assessments demonstrate at the time of be reasonably could extraction that reporting justified. Reserves are subdivided in order of reserves probable into confidence increasing and provedreserves a concentration or occurrence of material of intrinsic economic interest in or on the earth’s crust in such form, quality and quantity that eventual for prospects reasonable are there quantity, location, The extraction. economic and geological characteristics grade, continuity of resources are known, estimated or interpreted from specific geological evidence sub-divided are Resources knowledge. and geological confidence, increasing of order in categories measured and indicated inferred, into generally used mill, grinding semi-autogenous a as a primary or first stage grinding solution complex a mineralisation, types of the of one randomly or controlled structurally of system oeirnted veins. Stockworks are common in many ore deposit types a large underground excavation entirely within an ore a unit body, of ore extraction a horizontal extension of an ore body mineralisation or the mining of waste in an open pit mine Production Proved reserves Pt Reclamation Recovery or recoveryrate Refractory Reserves Resources mill SAG Stockwork Stope Strike Stripping
In the first step slurry containing gold and/or silver is separated into liquid and solid phases washingby the solids off in countercurrent decantation thickeners. In the second step slurry) of phase (liquid solution leach pregnant is filteredto remove impurities and deaerated. the onto deposited are silver and gold Finally, replace they where material claylike of bed solid zinc particles which pass into solution. a used preferentially is Merrill-Crowe ores silver-rich for plant processing mineral a components, valuable containing rock a sufficient quantities the necessarily in not extraction. justifiable economically for Consists of ore minerals and gangue mining feasible economically for amenable methods open-pit by a mine that is entirely on surface. Also referred a technological operation for extraction extraction for operation technological a of gold and/orsilver after cyanide leaching. asto open-cut or open-cast mine the part of mineralisation that can be mined and processed profitably geometrically and compact spatially a ore of location connected ore extracted from the ground for further processing ore subjected treatment to in a mineral plant processing operations. leach heap for stacked ore the ore in which both ore minerals and gangue development the on decision a for basis the as deposit the of are fully or partially oxidised thus impacting its influencing properties and chemical and physical technology processing a of choice the palladium slurry which in is operation technological a temperature high and pressure high to subjected in an autoclave with the goal destroy to sulphide make particles and gold particles enveloping leaching cyanide slurry to amenable processing mineral of product semi-finished the Merrill-Croweby process, normally containing and/or gold silver of concentrations very high ore unoxidised indicated an part mineable of economically the (and in some cases measured) resource, which has a lower level of confidence than proved reserves but is of sufficient qualityto serve
Mill Mineralisation Open-pittable Open-pit mine Merrill-Crowe process Ore Ore body mined Ore processed Ore stacked Ore Oxidised ore Pd POX or pressure oxidation Precipitate Primary ore Probable reserves
tonnage, grade and content can be estimated with a reasonable level of confidence. It is based information testing and sampling exploration, on from techniques appropriate through gathered locations such as outcrops, trenches, pits, are locations The holes. drill and workings too widely or inappropriately spaced to continuity and/or geological grade confirm assumed be to means 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 appropriate through gathered information on techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality reliabilityand exploration detailed of method conventional a on already defined resource of reserve, consisting of drilling on a denser grid allow to bodyparameters ore of estimation precise more location and the process of dissolving mineral values from slurry of phase liquid into solid means that part of a resource for which tonnage, grade characteristics, physical shape, densities, and mineral content can be estimated with a high level of confidence. It is based on detailed testing and sampling exploration, reliable and appropriate through gathered information techniques from locationssuch as outcrops, holes. drill and workings pits, trenches, enough closely spaced are locations The confirmto geological and grade continuity means the relative amount of metal in ore, expressed as grams per tonne for precious metals and asa percentage for most metals other the grade of ore coming into a processing plant crushed which in operation technological a impervious pad sloping, a on laid is material where it is leached cyanide by solution dissolveto gold and/or Metals silver. are subsequently recovered from pregnant leach solution CIC by or the Merrill-Crowe process an alloy of nickel, chromium, and iron that is highly resistant high to temperatures corrosion and means that part of a resource for which but are spaced closely enough for continuity
Inferred resource drillingIn-fill Leaching Measured resource Grade grade Head leach Heap Inconel Indicated resource Appendices Glossary continued Annual Report 2013 Polymetal International plc Appendices 162/163 Notes
Nature Indirect Indirect Indirect Indirect Indirect
of holding of (%) 4.19 9.95 4.36 18.49 20.50 of issued of Percentage share capital share Number of shares 71,9 97,758 38,740,784 17,000,000 16,335,275 79,840,437 Beneficial owner Beneficial Mr Petr Kellner Mr Alexander Nesis Mr Alexander Mamut Mr Oleg Shuliakovskii Mr Alexander Mosionzhik Alexander Mr Cypriotlegal advisors the Company to MouaimisMouaimis & Zinas Kanther Street 16-18 Limassol 3035 Cyprus Advisers Kazakh as to the law Company to GRATA Law Firm Ospanov M. Street104, 050020Almaty, KazakhstanRepublic of Company the of office Registered House Ogier Esplanade The Helier St Jersey 9WG JE4 Channel Islands 504000+441534 Registered 106196 No. Secretary Company Tchedaeva Tania contactsMedia Instinctif Partners Fink Leonid Friend Tony 2020 +44 20 7457 Relations Investor International Polymetal Maxim Nazimok Onuschenko Evgenia Revenko Elena 5964 (Russia) 313 812 +7 9503 (UK)+44 7016 20 [email protected] Powerboom Investments Limited Investments Powerboom Limited Fund A&NN Management Capital Limited, Vitalbond Limited Development MBC of the Company. Registrar Services Limited (Jersey) Investor Computershare House Queensway Street Hilgrove 1ES JE1 Jersey, St Helier, Channel Islands Auditors LLP Deloitte 2 New Street Square London, EC4A 3BX Kingdom United Brokers plc International Co. & Stanley Morgan Cabot25 Square 4QA London, E14 Kingdom United RBC Europe Limited House Riverbank 2 Swan Lane 3BF EC4R London, Kingdom United counselLegal Jersey legal advisors the Company to Carey Olsen Esplanade 47 0BD JE1 Jersey, St Helier, Channel Islands English, US and Russian legal advisers the Company to Bruckhaus Deringer LLP Freshfields 65 Fleet Street London 1HS EC4Y Kingdom United Bruckhaus Deringer LLP Freshfields 14/2 nab. Kadashevskaya 119017 Moscow Federation Russian Fodina B.V. Fodina Substantial shareholdings as at 30 March 2014 Shareholder As at 31 December 2013, the December Company’s issuedAs at 31 share 2013, capitalordinary consisted shares 389,472,865 of no of par value. The Company does not hold any ordinaryThe shares ordinary in treasury. shares100% reflecttotalof the issued share capital Staroak limited Staroak Appendices Shareholder information Appendices Notes
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