12 Mar 2024

Polyus CEO Alexei Vostokov: Capex growth in coming years will encourage us to tap debt market

Alexei Vostokov

Alexei Vostokov

Polyus could see its capex peak in 2025-2027 as the Sukhoi Log project is delivered, while production is not expected to rise until it is launched, Alexei Vostokov, the No.1 Russian gold miner's head, said in a quick interview with Interfax. In light of this, Polyus considers the debt market to be interesting and is looking at various ways to raise funding.

Q.: When does the company plan to start paying dividends again?

A.: We are currently operating against a backdrop of sanctions and ongoing geopolitical and economic uncertainty, and the company is entering a phase of increasing capital expenditure. Capex is forecast to grow more than 50% to $1.55-1.7 billion in 2024. The growth is mainly related to the natural investment cycle, preparations to launch Sukhoi Log and inflationary pressure, which we see in both operating and capital expenditures. As the Sukhoi Log project is implemented we assume that capex will also peak in 2025-2027.

Unfortunately capex is increasing as the availability of debt financing is decreasing and the cost of it is rising.

In these circumstances, Polyus must, of course, exercise reasonable discretion in liquidity management, in particular dividends. In order to return to the discussion of dividends, the board of directors has to make sure that there is enough cash flow in the coming years to carry out the investment program and to honor debt obligations.

Q.: Are any new buybacks planned? What are you going to do with the shares you have already repurchased?

A.: New share buybacks are not being considered at present.

As we said earlier, the repurchased shares can be used for various purposes, including financing development projects, M&A transactions or a long-term incentive program, or they can be canceled. We are currently considering various possibilities.

Q.: What are you forecasting for 2024?

A.: That production will fall slightly to 2.7-2.8 million ounces. Going forward we do not expect production to increase until Sukhoi Log is launched. Cash costs will increase from $389 to $450-500 per ounce due to inflation, wage indexation and higher inputs and equipment costs. Capital expenditures will increase from $1.04 billion to $1.55 billion-$1.7 billion.

The 2023 results turned out to be quite good, primarily due to the convergence of three factors: the discovery of rich ore zones at the Olimpiada field, the depreciation of the ruble compared to 2022 and a favorable market situation. Two of them are probably not applicable to 2024 and beyond. Gold gradings will decrease across the group as the Olimpiada fourth stage is ramped up and heap leaching increases. Changes in the ruble exchange rate are beyond our control, but this has stabilized.

So despite relatively good results for last year, the group's cash flow will be under pressure in 2024 against the backdrop of the factors I have already mentioned.

Q.: Are you thinking of buying any of the Polymetal assets from Mangazeya after they close their deal? Along the same lines as Chulbatkan?

A.: Polymetal does not have many assets in Russia that blend with the Polyus strategy. We prefer to acquire licenses, conduct exploration ourselves and build an asset from scratch. Moreover, we always study projects closely and scrupulously from the point of view of geology, mineralogy, technological solutions, engineering and capital expenditures, so that they allow us to maintain our competitive advantages in the future.

Q.: When will there be a feasibility study for Sukhoi Log? To what extent have the parameters changed there?

A.: Sukhoi Log is for a variety of reasons the best greenfield gold mining project in the world right now, and we have already done a lot of preparatory work to launch its development.

We began pilot development at the deposit at the end of last year, and this year we plan to obtain the first gold from Sukhoi Log ore at the Verninskaya gold recovery plant. We are also moving forward in preparing the field's basic infrastructure - roads, substations, power lines. Construction of main infrastructure - polygons, rotation camps - will begin in 2024.

We plan to present a project update this year.

Q.: Are you planning any new gold bonds or other public debt instruments? What's behind the convertible bonds, the potential perpetual bond issue?

A.: Our capital costs will increase significantly in the coming years, until Sukhoi Log is launched. The forecast for 2024 is 50% growth, to $1.55 billion-$1.7 billion. This will be even higher in subsequent years. We currently consider the debt market to be the most interesting, and in this respect we are looking at various ways to raise money.

At the same time, we see investor interest in our bind issues, trust in the company and optimism towards gold, so we are ready to try new tools for raising funds both for ourselves and for the market as a whole to finance current activities and business development. Our first gold bonds placement was successful, so I'm not ruling out new issues.

The idea of convertible bonds is still just an idea, one possible way to use some of the treasury shares repurchased during the buyback.

Q.: How are sales organized now? What is the ratio of exports to domestic sales?

A.: We cannot comment on sales due to the sanctions that both the company and the whole Russian gold industry is subject to.

Q.: Have you already paid windfall tax? If so, how much? What is the scale of exchange rate-linked duties?

A.: For windfall tax, we took advantage of the early payment option, before November 30, 2023. We paid 2.675 billion rubles in 2023.

As for duties, their effect could be considerable in 2024.

Q.: Does the obligation to sell foreign exchange earnings affect you? Is the news about this being extended until the end of the year negative or neutral?

A.: This measure was introduced for a closed list of companies, so I can't comment on it. Nevertheless, the government has assessed it positively as it has strengthened and stabilized the ruble's exchange rate.