Second quarter report – June 30, 2022
APRIL – JUNE 2022 (April – June 2021)
- Revenue TUSD 17,258 (17,872)
- EBITDA TUSD 4,217 (6,833)
- Non-cash impairment of ore in stock TUSD -8,792 (-2,043)
- Net financial results affected by revaluation of non-cash intra-group debt amounting to TUSD -6,620 and from unrealized gain from gold hedges TUSD 5,212 (loss of -2,805)
- Loss for the period TUSD -8,918 (-1,942)
- Earnings per share before dilution USD -0.01 (-0.00)
- Gold in stock ready for sale increased to 4.34 koz during Q2 2022, corresponding to a sales value of TUSD 7,877
- RUB 178 million exploration program for 2022 on the Krasny pro-ject agreed with the partner GV Gold during the quarter
- Directed new share issue raised proceeds of MSEK 8.1 before issue costs (TUSD 817)
JANUARY – JUNE 2022 (January – June 2021)
- Revenue TUSD 42,912 (37,234)
- EBITDA TUSD 15,359 (14,014)
- Unrealized loss from gold hedges TUSD -1,138 (gain of 3,362)
- Non-cash impairment of ore in stock TUSD -5,942 (-2,043)
- Loss for the period TUSD -5,218 (profit of 5,928)
- Earnings per share before dilution USD -0.01 (0.01)
- 2022 gold production guidance of 52-57 koz unchanged
SUMMARY OF FINANCIAL INFORMATION
| Q2 2022 | Q2 2021 | Δ % | H1 2022 | H1 2021 | Δ % | FY 2021 | ||||
| Gold production (gold equivalent), koz | 12.5 | 13.0 | -4% | 19.7 | 20.7 | -5% | 51.61 | |||
| Gold sales (gold equivalent), koz | 9.45 | 9.8 | -4% | 22.9 | 20.8 | 10% | 49.81 | |||
| Average realized gold price, USD/oz | 1,806 | 1,800 | 0% | 1,854 | 1,775 | 4% | 1,783 | |||
| Revenue, TUSD | 17,258 | 17,872 | -3% | 42,912 | 37,234 | 15% | 89,578 | |||
| Gross profit, TUSD | -3,597 | 4,361 | -182% | 10,363 | 11,645 | -11% | 24,421 | |||
| EBITDA, TUSD | 4,217 | 6,833 | -38% | 15,359 | 14,014 | 10% | 36,899 | |||
| EBITDA margin, % | 24% | 38% | 36% | 38% | 41% | |||||
| Profit for the period, TUSD | -8,918 | -1,942 | -359% | -5,218 | 5,928 | -188% | 7,715 | |||
| Earnings per share before dilution, USD | -0.01 | -0.00 | -0.01 | 0.01 | 0.01 | |||||
| Cash flow from operating activities before changes in working capital, TUSD | 4,399 | 6,830 | -36% | 15,519 | 14,009 | 11% | 36,636 | |||
| Total investments, TUSD | 7,410 | 7,769 | -5% | 17,363 | 17,197 | 1% | 28,376 | |||
| Cash & cash equivalents at the end of the period, TUSD | 2,083 | 868 | 140% | 2,083 | 868 | 140% | 6,145 | |||
| Net debt, TUSD | 108,097 | 59,592 | 81% | 108,097 | 59,592 | 81% | 60,637 | |||
| Net debt/LTM EBITDA, x | 2.83 | 1.42 | 99% | 2.83 | 1.42 | 99% | 1.64 | |||
| Equity per share, USD | 0.16 | 0.11 | 45% | 0.16 | 0.11 | 45% | 0.12 | |||
Robust operational performance and growth projects on track in a challenging business environment
The second quarter 2022 was a quarter of operational success for Kopy Goldfields. We managed to bring the newly upgraded Yubileyniy plant to full utilization and we commissioned our latest investment project - the new heap leach plant at Perevalnoe. In addition, the construction at the important Malyutka project is on schedule with the production launch targeted for next year. All of them are vital parts to reach the 2025 production target.
Production
All production sites were in operation by the end of the second quarter 2022. The modernized and extended Yubileyniy plant reached the full 250 ktpa capacity, almost the double capacity compared to last year. The total CIP and Heap leach production at Yubileyniy increased 72% compared to Q2 2021. Production at the new heap leach plant at Perevalnoe was commissioned with solution delivered to the heaps and sprinkler irrigation initiated while the Perevalnoe mill, which constituted over 50% of the production in Q2 last year, was being mothballed early in Q2. In Q3, after the reporting period, we received the first gold from the new plant. With the start of the warmer season, we launched production at our placer mines. Overall production of gold equivalent was 4% below Q2 last year.
Financial performance
Due to the weak Ruble nominated gold price, we choose not to sell all of our production during the quarter, which resulted in slightly lower revenues compared to Q2 last year, and in increase of gold in stock ready for sale. Revenues decreased by 3% compared to the second quarter 2021. Our average achieved gold price during the quarter amounted to 1,806 USD/oz, in line with Q2 2021. Cost of sales increased 54% compared to Q2 last year, primarily driven by a non-cash impairment of low-grade ore in stock, reflecting the lower Ruble nominated gold price at the end of H1 2022. While we report negative operating and net results, operating cash flow remained positive.
Kopy Goldfields has been qualified for tax benefits for the Yubileyniy project, which benefits from no Mineral Extraction Tax and reduced profit tax from March 2022. Preferential tax regime is designed to support regional investment projects within East Siberian and Far East regions of Russia.
Investments
We made progress with all scheduled investment projects. The heap leach plant at Perevalnoe was completed and launched during the quarter. Our main development focus in 2022 is the Malyutka project. The commissioning of this major growth driver will be next milestone towards reaching our production target of 100 koz of gold in 2025. We are on track with the construction sched-ule and expect to commence production at Malyutka in 2023 with full capacity to be reached in 2024. In addition to Malyutka, we commenced a feasibility study to extend the Yubileyniy project capacity to 400 ktpa.
Although the open pit reserves at Perevalnoe are depleted, we see potential for future production of underground gold ore reserves and continues to evaluate different options on how to proceed with underground mine development.
We continue our exploration programs with focus on Yubileyniy, the alluvial areas and on Ket Kap, which is the greater Yubileyniy area. On Krasny, we have received all exploration results and assay tests from the 2021 exploration program and we are proceeding with updating the geological model and reserve report. We have also agreed on the targets for the 2022 exploration program with our partner, and commenced the drilling operations in July.
ESG
Our action plan targeting to reduce Lost Time Injury Frequency Rate (“LTIFR”) is progressing, and I am happy to report that the LTIFR decreased to less than 0.7 during the first six months 2022, down from 1.66 in 2021. We are also moving ahead with our plans to use renewable energy from solar power plant at some of our sites. Design and engineering works are in progress and will be finalized towards the end of 2022. In addition, we continue with our waste utilization project, in order to further minimize our environmental footprint.
Macro environment
The macro environment continues to create many challenges. Sanctions against Russia and politics are key factors which influence the business and the development strategy. The recent gold sanctions adopted by EU and other countries do not affect us directly as we have no export, and have never had, to any country today prohibiting gold import from Russia. To secure gold sales channels and to have more options and flexibility to get the best price, we have started to directly export gold to open markets. What effects, if any, the gold export sanction will have on the industry in general is hard to predict, but we are constantly evaluating the situation.
International gold price volatility affects revenues and the substantial appreciation of the Russian Ruble affected our results significantly in H1 2022. During 1H 2022, the Ruble appreciated by 30% compared to the USD. Increased restrictions and regulations complicate cross-border transactions and make supply chains more expensive. On a positive note, interest rates and inflation in Russia are falling.
Outlook
Any outlook today is more uncertain than usual. We proceed to do what we are good at – adopt to the circumstances and continue to effectively mine our gold deposits and explore for new ones. We will take advantage of the warm season with alluvial and heap leach to increase our production to meet this year’s production guidance of 52-57 koz of gold. We strongly push our investment projects in order to meet our long-term production targets. And we see opportunities in the market created by the challenging environment which we are well positioned to capitalize on.
August 2022
Mikhail Damrin
CEO Kopy Goldfields
