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Good day, and welcome to the Polyus Financial Results for Q4 and FY 2020 Conference Call. Today's conference is being recorded. And at this time, I'd like to turn the conference over to Mr. Victor Drozdov. Please go ahead, sir.
Thanks a lot. Hi, guys. Thanks a lot for joining this call, especially given the fact that there are several other mining companies reporting their numbers today. So thanks all for finding time to join us.
So today, we are joined by our CEO, Mr. Pavel Grachev; and our CFO, Mr. Mikhail Stiskin, who will provide you with some additional color on those digits we reported for 2020 and those guidances we provided for 2021.
So yes, with no further ado, I will leave you in caring hands of our CEO. Pavel, please go ahead.
Well, thanks, Victor. Ladies and gentlemen, thank you for joining the call. Well, the 2020 had been a very strong year for Polyus, that despite the obstacles presented by the COVID-19, throughout the pandemic, we have worked closely with the local governments and the communities to aid our campaign to strengthen COVID-19 control programs and to ensure the health and safety of all our employees. As a result, we managed to contain the virus outbreak and maintain all our operations uninterrupted over the course of 2020.
We continue applying significant effort to minimize the virus threat to all of our employees. I'm proud that Polyus has been one of the first companies in Russia to launch a COVID-19 vaccination program at all its production assets. The program began on the 5th of February, and we plan to make the vaccine available to all employees of the company as well as any contractors currently working for Polyus.
Now back to our performance in 2020. In terms of our top line figures, we achieved record revenue of approximately $5 billion, which is a 25% increase in our previous year. Total cash costs for 2020 remained largely unchanged year-on-year, coming in at $362 per ounce, which is below our lower bound of our guidance range of $375 to $425 per ounce. Mikhail will provide later some further details on our cost performance in 2020.
Our EBITDA reached another record high of $3.69 billion, reflecting higher gold prices as well as our strong cost performance. Our capital expenditure of $653 million for the year was also below our guidance range of $700 million to $750 million.
We also remain on track to all of our future growth opportunities. We completed the feasibility study and made a final investment decision on a new large-scale brownfield project for Blagodatnoye Mill #5. Project assumes the construction of a new mill with nominal processing capacity of 8 million tonnes per annum, which comes on top of the existing Mill #4 through our throughput capacity of 9 million tonnes. At Sukhoi Log, we achieved several significant milestones. First, we provided a maiden ore reserve estimate for Sukhoi Log of 40 million ounces of gold and plan a solid resources and reserves -- to-reserves conversion ratio. In addition, we published the key outcomes of the pre-feasibility study for the project, which confirms Sukhoi Log as a long-life project of outstanding quality and scale. The project is now in the feasibility study stage, and we anticipate to release the key outcomes in 2022.
I will now hand over to Mikhail, who will provide some additional color on our financial performance. Please go ahead.
Hello, guys. So just to touch on our cost performance in 2020. As Pavel mentioned previously, our TCC remained broadly flat year-on-year, declining by approximately 1% to $360 per ounce. Now this reflects a number of factors. First, macro-wise, the depreciation of the local currency positively impacted our cost base. And that was counterbalanced by higher energy expense on the back of a gold price upswing. Secondly, lower head grades for Olimpiada exerted negative pressure. However, it was offset by better head grades at Blagodatnoye and Natalka. And finally, a little bit of respite from lower consumable prices on the back of a cycle downturn, which is most likely to prove transitory.
Now looking at the cost performance of our assets on a stand-alone basis. I would like to highlight separately that our TCC at Natalka fell by 10% to approximately $350 per ounce in 2020, and that is in line with our core flagship Krasnoyarsk assets. And the performance at Natalka was driven by high grades processed as well as implementation of a number of traditional initiatives at the combination circuit, plus the introduction of 2 flash flotation lines with the associated expansion of the CIL. And that enabled gradually increasing our throughput and also gradually increasing recoveries.
Now in terms of capital expenditure, we significantly accelerated our spending in the fourth quarter, as we guided to you previously. So our CapEx rose to approximately $270 million compared to $130 million in the third quarter, and that brought the overall tally for the entire year to approximately $650 million. Now the bulk of this increase is related to our Krasnoyarsk operations, where we continue to build up our mining fleet. We bought 7 220-tonne trucks into operation at Olimpiada in the fourth quarter. And we also delivered 4 220 trucks and 1 WK-20 shovel at Blagodatnoye.
Also at Olimpiada, in the fourth quarter, we completed the installation of the new SAG mill at Mill #3, which is already operating at design capacity of 878 tonnes per hour. In addition, we procured 2 Jameson Cell flotation units, which will be installed at Mill #2 over the course of this year. So we also completed the expansion of the Bio Oxidation capabilities.
In terms of free cash flow, our levered free cash flow figure stood at slightly above $2 billion, and free cash flow in 2020 almost doubled compared to 2019. Looking at the dynamics of our net debt position, it stood at approximately $2.5 billion, up $200 million from the third quarter. That reflect 2 major events. First of all, we paid a dividend in the reporting period for the first half of 2020. That's $420 million. And secondly, we allocated approximately $270 million for the buybacks in December 2020. So our net debt-to-EBITDA ratio, as a result, stood at 0.7x compared to 1.2x as of the end of 2019.
And separately, just touching on our performance versus guidance, our actual TCC and CapEx figures came in below the indicative ranges we provided. So we guided $375 to $425 for TCC and $700 million to $750 million for CapEx. Now the guidance was also based on sort of downbeat macro assumptions, an exchange rate of RUB 60 and gold price of $1,200. So if you adjust our actual numbers for the ForEx and gold price moves, TCC will be closer to the lower bound of the range, approximating $385 per ounce. And if you do the same for Capex, the ultimate figure will be closer to the upper end of the indicated range at approximately $740 million, and we'll also warn the market about that previously.
Now in terms of our expectations for 2021, taking into account the recent moves in gold price and ForEx rates, we decided to adjust our macro assumptions on which we base our guidance. It's now based on gold price of $1,300 and exchange rate of RUB 65.
Now in terms of our TCC for the entire year in 2021, we anticipate they will come in within the range of $425 to $450. We expect a significant increase in TCC from 2020 levels mainly on the back of a temporary reduction in head grades at Olimpiada and also rebounding inflationary pressures across the board.
Separately, we're going to be drastically reducing the amount of gold sold in concentrate. And that will technically lift our average TCC base while simultaneously reducing the antimony by-product credit. Looking at our CapEx guidance for 2021, we expect capital expenditure will substantially grow to approximately $1 billion to $1.1 billion across the group in 2021. The anticipated increase in capital expenditure is driven by several factors. Well, first of all is the final approval of the construction of Mill #5. Secondly, it's the delivery on the feasibility study for Sukhoi Log and construction of the local infrastructure. Third, it's a reconstruction of the TSF at Kuranakh. Fourth, a cyclical increase in spending on our mining fleet maintenance plus the expansion of the fleet itself, which is driven by the growing rock volume. And finally, increase in exploration budget and the rollover of IT capital expenditure from 2020.
And finally, just to reiterate our production guidance for 2021. Gold is standing at 2.7 million ounces. As we discussed in some detail at the conference call for our operational results, in 2021, we anticipate that grades at Olimpiada will be declining further on a year-to-year basis. It reflects the forced changes in the mining schedules on the back of the interruptions we suffered as a result of COVID-19 outbreaks in the second and third quarter, which ultimately led to a substantial reduction in the stripping volumes. So we will be ramping out -- ramping up our excavation volumes in 2021 and 2022, which will enable us to access the high-grade zones of the ore body within the fourth stage in the upcoming years. And that will naturally lead to a grade rebound in 2022, 2023 and, hence, stabilization of TCC.
Finally, some color on COVID-19 expenses. So in 2020, we allocated around $155 million with measures aimed at preventing the spread of the disease across the operation. That includes $100 million put through the P&L, and the rest was capitalized. That will include working capital impact, capitalized shipping impact and capital expenditure.
Now in terms of our extraction expense in '21, they will be lower. We currently anticipate approximately $100 million to be allocated. But as you can expect, there is naturally a lot of volatility around this number.
That's all in terms of my comments, and now back to Pavel.
Yes. Thanks, Mikhail. Well, finally, I'd like to highlight a few things on the ESG front. A week ago, we signed an agreement with RusHydro for the supply of environmental-friendly electricity to our Krasnoyarsk operations. The power will be supplied by Sayano-Shushenskaya hydropower plant. As per this agreement, 100% of the electricity consumed by Polyus' largest producing assets, namely Olimpiada and Blagodatnoye, will be renewable.
In terms of our greenhouse gas emissions, we expect these to be reduced at our Krasnoyarsk asset by almost half in 2021. While company-wide, G and -- GG emissions will decrease by 1/3 compared to 2020. In total, up to 90% of the increased demand in all the company's operating assets will be met by renewable sources in 2021.
For the closing remarks, I would like to highlight that the company's Board of Directors have preliminarily considered dividends for the second half of 2020 that it intends to recommend for approval at the company's AGM. In line with our existing dividend policy, dividends for the second half of 2020 will amount to approximately $690 million or 30% of EBITDA for the respective period. Dividend per share for the second half 2020 is expected to be $5.09 per ordinary share -- sorry, $5.0-9. The total dividend payout for the full year of 2020 will, therefore, correspond to approximately $1.1 billion.
Thank you for your time. Now we are ready to take your questions.
[Operator Instructions]. We will now take our first question from Daniel Major from UBS.
A couple of questions. First, you're drawing down some ore stockpiles at Olimpiada. Can you clarify the mix of processing of ore versus stockpiles in 2021? And also, quantify any potential release of working capital associated with that.
Yes. So in terms of feeding of ore into the mills at Olimpiada in 2021, we think that 75% of the feed will come from low-grade stockpiles, and approximately 25% will be high-grade in-situ ore.
Now in terms of the impact on working capital for Olimpiada specifically, it will result in a meaningful release. However, in terms of ore inventory moves across the group, it will be counterbalanced by accumulation of long-term ore inventories, particularly at Blagodatnoye and Natalka. So with regard to ore inventories, again, just this particular item of working capital, we don't think that will be any significant move in 2021.
Okay. Maybe to follow up on that working capital. Is there any other elements of working capital we should be aware of that might move meaningfully through the balance of the year? Particularly, if the COVID-related risks to supply chain start to moderate in the second half, is there scope to reduce working capital elsewhere?
Yes, there is. So in terms of major items which will impact working capital moves, it will be a reversal of accounts receivables. So we had quite a significant move, an increase of approximately $100 million in the fourth quarter of 2020 since the flotation concentrate containing antimony was shipped but not paid for. So that will reverse in the first quarter of 2021, significantly helping the working capital.
In terms of our baseline case for the entire 2021, we expect the working capital to be either flat or there could be a slight release, again, for the entire year. That takes into account sort of easing of the COVID-19 situation coming into the second half of the year.
Okay. So small, moderate release is the message?
Slight or moderate release, yes.
Okay.
Yes.
Yes. And then second question just more broadly on cost profile. We've seen across some of your peers, I guess, across the global industry flagging some return of cost pressures beyond just the currency and sort of oil price inputs. What's the biggest sort of area of pressure you're seeing at the moment? And where do you see the greatest risk to the cost guidance you've issued today?
Yes. So we anticipate we'll be sort of bearing the full brunt of cost inflation in 2021. This will affect the entire range of consumables. It will affect equipment and spare parts, and it's also going to affect labor especially for qualified personnel.
In terms of consumables, the only exception is sodium cyanide, where we're seeing a price reduction. For everything else, we are likely to see double-digit increases in 2021. And sometimes, the moves are quite significant, for example, for copper and sulphide or for grinding media on the back of a steel prices rally.
We're also seeing intensified competition for equipment and spare parts, as I said. So the vendors have the capabilities to sort of increase pricing, and we have to sort of accommodate that. So we think that 2021 will be a particularly difficult year.
As you see, I mean, the situation is evolving. The cycle has only been strengthening. For the past couple of months, oil price is already standing at $67. That will -- that could drive the local diesel prices in the first half of the year up. So it is a complex and fairly daunting situation in our view. We did try to reflect that in our -- it's not -- yes, yes, I'm just saying that we did try to reflect that in our TCC guidance. But again, it's a sort of -- it's an evolving situation and right now evolving negatively for commodity producers.
Okay. And then final question is on Capex. You provided a guidance for underlying Capex. And I just -- I guess in line with the restrictions at Olimpiada, the capitalized stripping costs fell in 2020. What's the outlook for capitalized stripping costs both in 2021, but also on a sort of sustainable basis, what's the level of cost we should be factoring in there?
So first of all, the stripping volumes and the amount of stuff moved will -- or substantially increased across all of the assets, particularly at Olimpiada, Olimpiada by approximately 30% and across the group by approximately 15%, 20%. So at Olimpiada, that relates to acceleration of Stage 4. At Blagodatnoye, that relates to Stage 2 as we are gearing up for expansion of the facility and the ultimate commissioning of Mill #5 and hence the increase in the processing capacity to approximately 17 million tonnes across 2 mills at Blagodatnoye from 2025 onwards. So we anticipate that the capitalized shipping volumes will strongly rebound in 2021 and will be most likely ahead of 2019 levels.
Can you give any indication of the magnitude versus the $130 million of capitalized stripping and interest last year?
It's not $130 million. So it was $200 million in 2020. It was approximately $240 million 2019, and what we are saying is that the amounts are likely to be in excess of 2019 figures. But this particular year -- it will normalize down further on. But this particular year will be particularly challenging given the pressing need to ramp up mining volumes at Olimpiada. For Blagodatnoye, it was scheduled. Thank you.
We will now take our next question from Ivan Solovsky [ph] from VTB Capital.
Yes. I'm just -- I mean, most of my questions have been already asked, so just one small follow-up question. May you please provide some maybe general cost inflation guidance which you assume in your cost guidance for 2021?
Well, we're not going to be providing sort of specific guidance on cost inflation. What we are saying is, again, I will repeat myself, we are bearing the brunt of cost inflation in 2021, and that has been incorporated into our cost guidance, taking into account all other factors. I'm talking about the operational factors such as grade moves and recovery moves as well.
[Operator Instructions]. We will now take our next question from Ilia Dmitriev from Goldman Sachs.
I have questions regarding your concentrate and antimony outputs. So could you please share your guidance on gold content in concentrate and antimony production volumes in 2021?
All right. So the volumes are likely to be insignificant. So we had approximately 7,500 tonnes of concentrate as of the end of 2020. We will be producing approximately 10,000 tonnes of antimony-containing concentrate in 2021. And that entire volume, i.e., 17,500 tonnes, will be sold in 2021, and that's containing approximately 3,000 tonnes of antimony. So the by-product credit will be almost meaningless. Now the volumes of antimony-rich ore mined and processed will strongly rebound in 2022, 2023, and we expect them to be broadly comparable to 2019 levels in terms of production. Thank you.
We will now take our next question from Timothy Riminton from Barclays.
Just a quick question from me on your Eurobonds. Your curve is getting quite short dated now. Funding rates in the market are at pretty attractive levels. So I was just wondering if you had any thoughts about refinancing your current outstanding Eurobonds or whether that's something you're looking at in terms of funding for Sukhoi Log in the sort of the medium term.
Right. At this point and, I mean, sort of looking at 2021 and 2022, in light of our solid financial position and more than sufficient free cash flow, we do not anticipate any new borrowings. And all the outstanding bonds will be settled in cash. Again, that may -- that situation sort of may change, and we may sort of adopt a different stance. But at this point, the funding is more than sufficient.
And you are not then considering any more proactive action?
We're going to be considering any proactive action, and we will inform you accordingly at due time.
We will now take our next question from Anna Antonova from JPMorgan.
A quick question from our side. I remember you earlier commented about your cost and CapEx guidance for last year, just bringing it -- scaling it down to the actual realized gold price and FX assumptions versus your budgeted ones and comparing how you fared to last year versus your guidance. So my quick question is for your TCC guidance for this year, $425 to $450 per ounce. You mentioned that it -- that range is under the assumptions of RUB 65 per dollar and gold price of $1,300 per ounce. Do I understand correctly that this range could be around $400 per ounce based on the spot price, gold price and FX? So if we plug in RUB 74 per dollar and $1,800 per ounce, your TCC guidance for this year could be roughly like $390 to $410? Is that the correct calculation? And if not, what kind of your adjusted TCC guidance on spot prices and FX would be?
Well, there is a mistake in your calculation. So at spot, i.e. gold price of $1,800 and the exchange rate of, say, RUB 74, that will bring you to approximately $410, $415 per ounce.
Okay. Understood. And -- okay, on the...
I mean, our Investor Relations -- yes, I'm just saying that our Investor Relations team can sort of walk you through the calculations in order to arrive at that number off-line.
Right. Okay. Understood. Just a quick question. So in terms of your current forecast cost structure for this year, could you please remind us what the share of the ruble cost ex royalties? Is it the same as it was last year?
Yes, 75% at royalty. Yes.
[Operator Instructions]. There are currently no questions in the queue at this time. I will turn the call back to your host.
Yes. Thanks a lot. Thanks a lot, guys, for joining our call. And to those shy enough to ask their questions publicly, you can always send us an email. Thanks a lot. Cheers. Bye.
Ladies and gentlemen, that will conclude today's conference, and you may now all disconnect.