Polymetal International plc

Dear ladies and gentlemen, welcome to Solidcore H1 2025 Financial Results Webcast. Today on the call, we have the company's CFO, Evgenia Onuschenko; and the CEO, Vitaly Nesis.

Our presentation will be followed by the Q&A session and you can submit your text question online using the webcast platform. Now over to Evgenia.

Thank you.

Thank you. Ladies and gentlemen, thank you very much for joining our call today.

I'll begin with a brief overview of our half year financial results, followed by an update on our key development projects and the company's outlook. But first, the safety update.

We are pleased to report that we recorded no fatal accidents or lost time injuries among either our employees or contractors. This result is consistent for several years already and reflects our commitment to ensuring a safe working environment at all our operations.

Next, please. So turning to the financial and operational highlights.

Let me first provide a brief overview of the macroeconomic context. In the first half, the gold price averaged just over $3,000 per ounce.

That's almost $500 higher than the 2024 average, an increase of about 18%. It provided a strong cushion against the temporary sales challenges we faced in the first half.

On the currency slide, the tenge averaged 512 to U.S. dollar.

Compared with the last year, it depreciated by 14% and offset the effect of domestic inflation, which is running close to 12% now. Our performance in the first half of the year was shaped by 2 main factors, most significantly by the delays in processing of Kyzyl concentrate at the third-party plant in Russia and obviously, by gold price.

Both our operations performed in line with the plan, but because of the delay in toll processing of our concentrate, that meant that a significant portion of sales was pushed into the second half of the year. So as a result, our financial metrics showed a marked year-on-year decline.

However, now when the stockpiling of the Kyzyl concentrate has started, we expect to see a strong rebound in operating cash flow in the second half. Despite the temporary challenges in concentrate shipments, our business demonstrated resilience.

Revenue reached $325 million. EBITDA margin was 47%.

We delivered roughly $100 million in underlying net earnings. And we ended the second quarter with a solid net cash position of $143 million.

Next, please. So looking at production, total gold equivalent output fell 50% year-on-year.

Varvara run according to plan with a modest 9% decrease, driven by the planned decline in Komar and third-party ore grades, which naturally led to lower sales volume. At Kyzyl, we mitigated part of the impact by redirecting some concentrate sales for alternative channels, including China and a local producer.

But our biggest customer is still Kazakhstan's largest state-owned gold refinery, which then sells the gold on the -- to the National Bank of Kazakhstan. Next, please.

As I mentioned before, revenue is expected to be materially weighted towards the second half of the year. The good news that as a result, we will benefit from even higher gold price we are seeing now.

At Varvara, stronger commodity prices helped to partially offset lower grades and volumes. Next, please.

So our total metal and circuit inventory increased by 170,000 ounces by end of June, mainly represented by gold and concentrate at Kyzyl. Most importantly, concentrate processing and sales stabilized in the third quarter.

We delivered 48,000 ounces to Amursk in July and August and bringing concentrate inventory levels down to about 170,000 ounces. We expect the release of the majority of accumulated concentrate by year-end, but portion of stockpiles will be carried into 2026.

So as a result, our full year production guidance has been revised down by 11% to 420,000 ounces. Next, please.

So turning to costs. Total cash cost increased mainly for 2 reasons.

So first, the deferral of Kyzyl sales, which meant that costs were spread over fewer ounces sold. And second, domestic inflation combined with higher mining taxes linked to the gold price.

Looking ahead, as sales normalize, we expect total cash cost to come down in the second half and finish near the upper end of our original guidance range of $1,000 and $1,100 per ounce. Next, please.

At the asset level, Kyzyl cash cost in the first half weren't really representative because of the deferred sales. At Varvara, total cash costs were 14% higher year-on-year, mainly due to the planned decrease in grades.

Next, please. All-in sustaining cash cost dynamics was driven by the same factors as TCC, plus higher sustaining capital expenditure for fleet renewal and more capitalized stripping at Komar mine.

For the full year, we expect all-in sustaining cash cost to land within the revised range of $1,450 to $1,550 per ounce or about $100 higher than our original guidance, and this is mainly due to a stronger than budgeted tenge exchange rate and lower projected sales at Kyzyl. On the next slide, you can see the all-in sustaining cash cost by asset, which illustrates exactly what I've just explained.

Next, please. Adjusted EBITDA for the first half was $152 million, of which like $125 million was contributed by Varvarinskoye mine.

The EBITDA margin stood at 47%, so still demonstrating solid profitability despite the significant reduction in ounces sold. The reconciliation shows that while higher gold prices obviously helped a lot, this was more than offset by the reduction in sales volumes and high per ounce cash costs.

Next, please. We closed the second quarter with a solid net cash position.

Our operations generated $75 million in operating cash flow before working capital changes, while about $160 million remained tied up in working capital and $145 million were allocated to investments. Next to balance sheet.

So our balance sheet continues to demonstrate resilience and financial flexibility. Gross debt stood at $208 million with an average interest rate of 5%.

As of the end of June, we held approximately $350 million in cash, and we had $139 million of undrawn credit lines. In July, we further enhanced liquidity by signing a $100 million credit facility with ING Bank, which is expected to refinance some of our maturing debt facilities.

And thanks to significant the stockpiling in July and August, Solidcore ended like summer with approximately $535 million in cash and a net cash position of $250 million. Next, turning to our investment program.

Growth remains our #1 priority. So in the first half, we spent $128 million on capital expenditure.

About half of that went into the Ertis POX project, which is now moving into full-scale construction. We also invested approximately about $11 million in renewable energy projects at Varvarinskoye.

And the rest, around 30% was spent on sustaining operations through technical upgrades, fleet renewals and capitalized stripping. Overall, our capital expenditure program strikes the right balance between growth, green initiatives and keeping our operations running sustainably.

Looking ahead, next year, we will move into a more capital-intensive phase with the advancement of the Ertis construction and preparation of the definitive feasibility study for the Syrymbet project as well as preparation for the underground mining at Kyzyl and the potential launch of the new solar plant project at Kyzyl. So now let me update you on our growth projects.

At Ertis POX, basic engineering is now 85% complete with the detailed engineering already launched. Procurement is progressing.

The autoclave was delivered to Pavlodar port. So construction of the autoclave foundation is underway and expected to finish in the fourth quarter.

The Syrymbet project received a positive state expert review for temporary facilities. Basic engineering has started like with process design specification expected in the fourth quarter this year.

The Board has approved investment into the pre-feasibility study and the approval is expected in the second half next year. Turning to Bai Tau Minerals exploration portfolio.

The geological and technological studies continue with the mineral resource estimate expected in the first half of 2026. We will be ready to make a final investment decision in the second half of 2026.

In the meanwhile, we acquired a 10.7% stake in Besshoky, which is the flagship copper project in the Bai Tau exploration portfolio for $15 million from minority shareholders. The acquisition of 51% interest in Tokhtar pending regulatory approval.

Apart from then, we are looking at some early-stage exploration projects and continuing our near-mine exploration campaigns, which we expect will translate into resource and reserve growth. Next, at Ertis POX, construction continues to advance.

Work on the autoclave foundation and POX frame is underway as well as preparation for on-site roads, as you can see from the photos. The project remains on schedule, and it is an important step in removing our dependence from third-party concentrate processing and offtake.

With the completion of the bankable feasibility study, our discussions with potential lenders are now entering the active phase. So we are aiming at signing the facility documentation in the second quarter next year.

Turning to guidance for the year. We maintain our revised production guidance of 420,000 ounces, which reflects the concentrate deferrals.

Total cash cost guidance remains on track. All-in sustaining cash cost guidance has been revised upward, as I mentioned before, due to currency effects and lower projected sales at Kyzyl.

Capital expenditure guidance is unchanged at $300 million. So going forward, given the current record price and the strong sales in the second half, we expect a substantial positive free cash flow from operations for the full year.

And here on the last slide, you can see the sensitivities of our key metrics to possible changes in the macroeconomic parameters. To conclude, we expect the second half to show a substantial improvement over the first half.

We are confident that the release of Kyzyl concentrate will restore sales volume and return us to the positive free cash flow. Thank you for your attention.

And with that, we will be happy to take your questions.

Hello. This is Vitaly Nesis, the CEO of Solidcore.

Will the efforts from the drilling campaign replenish the year's production? I think if we include the Tokhtar, which hopefully will be on our balance sheet by the end of the year, we will replenish the production.

Does management believe that there is an increased risk of a hostile takeover of the company as the share price seems to be lagging behind the price of gold? I personally believe this risk is de minimis because we have a very strong and committed shareholder Oman Investment Authority.

And as far as I understand from communication with other significant institutional shareholders, they fully understand the reasons for the lower share price and are prepared to wait out, not ready to sell at these price levels or even at the level significantly above the prices. Are there already plans and contracts with alternative buyers for the Kyzyl concentrate?

Yes, we are working closely with Kazakhmys. We have successfully delivered a trial a lot of concentrate to one of their copper smelters, and we plan to expand our cooperation in the fourth quarter.

Clearly, the alternatives for almost POX would present a major risk mitigation opportunity for the company. What KPI to be achieved for solid quarter pay dividend in 2025?

As we have mentioned before, it's not about financial KPIs, it's about our progress towards the resolution of the situation with the shares locked in Russia under NSD. This is the barrier to paying a dividend.

And unfortunately, this barrier will not be removed this year. Can you please provide an elaborate answer regarding what exactly happened in the most cost and why?

Well, in a nutshell, the start-up of the new circuit took significantly longer than originally expected. Why this happened?

My best guess is the sanctions against Russian mining minister play a big role. In terms of the cash going down, well, yes, it did go down.

On the other hand, as a result of this delay in monetization of concentrate, we now hopefully will be able to get higher prices for our material so we inadvertently became the net beneficiaries of the gold price dynamics. So no course for worrying too much.

When you sell the stockpiles, will you get the spot price? Yes, we will get the spot price.

Can you provide an environmental permit time line for the POX facility? Now we expect to get the full final permits in the first quarter of the next year.

What are your expectations for an underground transition at Balkhash? When do you expect feed and what studies will be required prior to that?

When do you expect to begin development and produce the first underground ore? The feed is completed.

We are now in the process of basic engineering. Now we expect to start underground development at the end of 2026, mine first underground ore in 2030.

What is current expected timing for the feasibility study ahead of 2026? Do you expect to develop this on your own or in partnership?

The pre-feasibility study has been completed. We are now in the middle of definite feasibility study, which will be completed in the second quarter of the next year, paving the way for the final Board decision.

And we will manage the project. I'm not sure what definite mineral is.

We will manage this in partnership with our partners, Lancaster Group, but they will definitely take a passive role in terms of project development, project execution [ process ]. I already mentioned the nature of the delay in terms of processing agreement in Russia, that's the start-up of POX-2 line at Amursk.

And any new gold assets that you are looking at? Unfortunately, the recent explosion in gold price drove the expected valuations of the potential gold targets skyward and some of the M&A opportunities we've been actively looking at are now priced at the levels that we believe are not appropriate.

So M&A is currently -- I wouldn't say on the back burner, but I just don't think we'll be able to clinch any significant new deals this year. Evgenia, over to you.

Okay. You've mentioned the expected CapEx increase in 2026.

Can you provide an approximate estimate, please? We are looking at roughly $400 million, maybe $450 million next year, but we will provide our capital guidance for the next year closer to the -- like in the fourth quarter as usual because we're still finalizing our plans.

Does management consider gold price hedging as an option for Solidcore? No.

We prefer to have full upside -- to keep full exposure to the gold price upside. Is there any discussion to achieve a secondary listing on either London Stock Exchange or another exchange?

Our priority at the moment, we are more focused on completing our -- like the main development projects. And also, first, we need to remove our links with the Moscow Exchange.

So we initiated the final exchange offer, and we plan a final buyback this year. This is the important step before we think about any potential new listing on the international markets.

Is there any effort to capture more analyst coverage of the stock? Yes, it is one of our priorities.

I think we expect maybe 1 or 2 new initiations and coverage next year. And I think with that, I will probably finish the Q&A session.

Is there any other questions from our webcast call?

No, I believe that nothing is left. Laura, there are no more questions, so you can proceed with finishing the call, please.