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Edited Transcript of POLY.L earnings conference call or presentation 29-Aug-17 2:00pm GMT

Thomson Reuters StreetEvents

Half Year 2017 Polymetal International PLC Earnings Call

LONDON Sep 6, 2017 (Thomson StreetEvents) -- Edited Transcript of Polymetal International PLC earnings conference call or presentation Tuesday, August 29, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Maxim Nazimok

Polymetal International Plc - CFO

* Vitaly N. Nesis

Polymetal International Plc - Group CEO & Executive Director

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Conference Call Participants

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* Barry Lee Ehrlich

Citigroup Inc, Research Division - Director

* Boris Sinitsyn

VTB Capital, Research Division - Research Analyst

* Daniel Edward Major

UBS Investment Bank, Research Division - Director and Analyst

* James Andrew Keith Bell

BofA Merrill Lynch, Research Division - Associate

* Nikolay Sosnovskiy

* Richard Hatch

RBC Capital Markets, LLC, Research Division - Analyst

* Vahe Ovasapyan

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the first half 2017 production results conference call. Today's speaker will be Mr. Vitaly Nesis, Group CEO; and Mr. Maxim Nazimok.

I will now hand over to your host, Mr. Vitaly Nesis. Sir, please go ahead, sir.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [2]

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Thank you very much. Ladies and gentlemen, thank you very much for joining us at this call, which is dedicated to the financial results of Polymetal International for the first half of 2017. I will first briefly walk you through the highlights of the first half results. Then Maxim Nazimok will dwell more on the details of financial performance, and we'll conclude with the Q&A session.

In terms of the overall financial highlights for the first half, first of all, we saw a pretty robust operating performance, which coupled together with stable or better gold and silver prices, led to 15% net increase in revenue in the first half. At the same time, we did see quite a bit of the headwinds in terms of stronger Russian ruble, and that has led to significant increase in all-in sustaining cash cost of 20%. This is more or less in line with the pace of ruble strengthening in the first half of 2017 versus first half 2016.

At the same time, we managed to maintain a healthy -- relatively healthy margins, and the adjusted EBITDA declined only by 12% to $257 million. As a result, the underlying net earnings have decreased only by 6%. And given the change in how the dividend policy enacted in the beginning of the year, we are very happy to report that the dividend for the period had jumped by about 40%, and will comprise $0.18 per share. Capital expenditures have risen by 65%, mostly on the back of intensified spending at Kyzyl, our largest development project.

In terms of the financial position, traditionally, mid-year is the period of peak inventory for Polymetal, and that's why net debt has increased quite substantially to roughly $1.6 billion. However, the leverage parameter of net debt or adjusted EBITDA is still well below the threshold level of $2.5 billion.

In terms of the outlook for the second half of the year, we expect in line with several previous years, a much stronger second half. We expect higher production. We expect lower costs, and we expect massive inventory drawdown, resulting in significant free cash flows in the second half. This decreases in inventory will be most prominent at Mayskoye, Svetloye and Omolon.

So overall, we are on track to deliver on our production guidance of 1.4 million ounces of gold equivalent for the full year. We expect lower costs and much stronger free cash flows in the second half, and we are quite confident in our ability to finance the regular dividend out of free cash flows for the year.

And with this, I yield the floor to Maxim, who will walk you through more specific details of the financial performance.

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Maxim Nazimok, Polymetal International Plc - CFO [3]

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Thank you. We will start with the revenue analysis. Vitaly already mentioned that the revenue growth has been largely driven by the solid operating results. So revenue grew up 15%, while gold equivalent sold grew 14%, so there was a little bit of help from the price levels mostly in silver, whereas most of the revenue growth was volume driven.

Most of the growth is coming in gold rather than silver, as all of the new projects are bringing additional revenue, including Varvara, Kapan and Svetloye are pure gold or polymetallic deposits. We remain pretty close in terms of the average realized prices to the market levels, and we continue to see the seasonality in revenue. So as Vitaly already mentioned, the numbers will be significantly higher for the second half of the year when we will release significant accumulated metal inventory.

In terms of the adjusted EBITDA, most of the impact besides the revenue growth was on the part of the cash cost, which were largely driven by a significant ruble-dollar appreciation compared to the first half of 2016. The first half of 2016, so an average ruble-dollar rate of RUB 70 versus the average rate of RUB 58 in the first half of this year, so a 21% appreciation had quite a pronounced effect both on the cash cost level, and consecutively, on the adjusted EBITDA. As a result, it has demonstrated absolute decline in adjusted EBITDA. However, again, on the back of stronger production and sales in the second half of the year, we would see that to be reversed.

In terms of the cash cost dynamics, Page 7, you can see the individual mine dynamics. I think what is notable here is the very good operational improvement that has driven cash cost decline at both Varvara and Kapan. Kapan has demonstrated a particularly impressive progress, reducing the total cash cost level by 33%. At Varvara, the cash cost declined by 17%. At Varvara, the key driver was the introduction of a significant amount of Komarovskoye ore into the feed with a higher grade. And at Kapan, we have been able to develop -- to debottleneck the underground mining productivity and achieve better grades in the processing.

At most of the other material mines, including Okhotsk, Voro, Omolon, Albazino, the cash cost dynamics was largely driven by the ruble appreciation. At Dukat, in addition to that, we had change in average grade, which also was a significant driver in the cash cost performance. That was pretty much in line with the mining plan, so the current level pretty much reflects the current grade profile at the mine. There was also a bit of a structural change, as some of the production growth has been coming from the relatively higher cost mines compared to the portfolio average. That is particularly important in case of Varvara.

For Mayskoye, the first half of the year has seen very limited sales, and as a result, the move to total cash cost and all-in sustaining cost -- cash costs are not representative of the underlying performance. We will release the full year cash cost numbers for Mayskoye in the second half. Right now, the first sales of concentrate are already ongoing. And again, at Mayskoye, we would see meaningful operational improvement on the back of the better performance at the underground mine.

The next chart pretty much shows the impacts on the group level all-in sustaining cash costs. Again, the key driver here was the ruble-dollar exchange rate and a bit of the change in the sales structure that I have touched upon. In all-in sustaining cash cost, there is quite a significant element on the fixed cost. So as we see more sales, more production in the second half of the year, those fixed costs will be spread over a larger amount of ounces, and this will help us to get back into the guided range of $775-$825 per ounce on all-in sustaining cash cost basis, provided that the exchange rate stays where it is at the moment, i.e. very close to RUB 60 per dollar.

And as you can see on Page 9, Polymetal retained a significant amount of exposure to both the ruble and the oil price at the moment. So RUB 1 per dollar movement has an approximate $8 per ounce impact on the total cash cost basis. We continue to be a strong dividend payer. With the new dividend policy, most of the dividend flow will be coming through the regular dividends, as it is now, 50% rather than 30% of the underlying net earnings. As a result, the suggested interim dividend already brings the total per share payout to a level comparable to the full year payout in 2016. We are fully on track to be paying regular dividends for the second half of the year in accordance with the new policy, as the net debt is expected to decline on the back of significant free cash flow generation in the second half of the year.

That brings us to the outlook of net debt, declining back to approximately $1.35 billion by the year-end, should the current macro environment remain stable in terms of the gold and silver prices and in terms of the exchange rate, so bringing the relative net debt level back below the 2x adjusted EBITDA. In terms of the debt structure, we've had a particular successful 8 months of the year in terms of the refinancing. We've been able to make several large transactions and also a few other smaller refinancing transactions, most importantly, pushing back the maturity of the Sberbank loan to 2024, and also signing the new EBRD loan for the financing of Kyzyl, with the maturity of 2022.

So as a result, as you can see from the maturity profile on Page 12, the average maturity is now significantly more than 3 years, while the average cost of debt remains very low, just above 4% per annum, and that includes a 46% share of the fixed rate borrowings. We thought it would be a conservative and wise move to lock in some of the lower interest rates that we are currently seeing in the market, while maintaining the average cost of debt pretty low. So we now have a pretty balanced loan portfolio in terms of the exposure to the ruble interest rate. And we continue to maintain a large amount of available undrawn facilities to cover any refinancing needs and short-term financing needs for the future.

I would probably pass over back to Vitaly for concluding remarks, and a few notes on the progress of Kyzyl as a project, and we will then be open for questions.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [4]

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Thanks, Maxim. In terms of Kyzyl, I would just like to emphasize that we are fully on track to launch this asset into production in the third quarter of the next year. As you can see from the scorecard, we are pretty much done with permitting, engineering and contracting. Construction is continuing at pace. We see no problems in terms of equipment delivery or construction activities. And importantly, we continue to see the project coming in slightly below budget, thanks to continued weakness of Kazakh tenge and to the deficiencies, which we have gained during the pre-stripping stage.

And in terms of 2017 outlook, we pretty much maintained all of the guidance that we have previously issued in terms of production, total cash costs, all-in sustaining cash costs and capital expenditures. We believe regular dividend is assured, and special dividend decision will be made in January. As always, a lot will depend on the dynamics of the gold price until the spike to date, I would have been quite conservative in terms of my estimates for the special dividend. But now if gold stays above $1,300 for the rest of the year, let me know, who knows.

Just to recapitulate, we are on track in terms of the guidance, and we definitely look forward to our second half results, which will be stronger, both in terms of production, costs and cash flow generation.

And with this, we'd be happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have a question from James Bell from Bank of America Merrill Lynch.

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James Andrew Keith Bell, BofA Merrill Lynch, Research Division - Associate [2]

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I just wondered if you could clarify on the all-in sustaining cost guidance. You mentioned that it's contingent on the ruble-dollar exchange rate. In an environment where we see spot, which is RUB 58 or RUB 55 versus RUB 60, which you've used for guidance, where could we expect the top end of all-in sustaining cash cost guidance to come in?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [3]

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Well, I think that we -- at the current level of spot ruble, we will be pushing the upper end of our guidance range.

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James Andrew Keith Bell, BofA Merrill Lynch, Research Division - Associate [4]

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Okay. And then if you could just remind us maybe on what you're thinking, it's good to get a year-end target for your gearing and net debt. I mean, should we think about a similar level throughout 2018? Or do you see that coming down materially as you -- the CapEx rolls off at Kyzyl?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [5]

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The question was about net debt at the end of 2018?

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James Andrew Keith Bell, BofA Merrill Lynch, Research Division - Associate [6]

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Yes. I just wondered because you've given guidance on the end of '17. I was wondering what level you're targeting on a go-forward basis for 2018. Are we going to see that come down further? Or are we going to sort of maintain a similar level in 2018?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [7]

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Well, unless we see a significant change to commodity prices and the foreign exchange rates, the preference for us would be to utilize excess free cash flow to pay dividend. So the lowering of absolute debt levels is not a priority for us in terms of cash flow application.

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Operator [8]

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Our next question is from Daniel Major from UBS.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [9]

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I appreciate it's only half way through 2017, but I was hoping you could provide a little bit more detail on the sort of bridge to the guidance you previously provided in terms of production and in terms of cost for 2018. I think your last guidance was 1.55 million ounces of production gold equivalent in 2018. Can you give us a sense of which assets contribute to that? Obviously, Kyzyl is coming in, but give us a reminder on where the key deltas are. And similarly, on cost, obviously, the ruble and the oil price are the biggest driver, but you look to be making sort of good progress at Kapan. Could you give us a sense of other areas you would expect to see a significant delta year-on-year in operating costs, obviously, assuming the ruble and the oil price at the same sort of rate into next year?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [10]

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Well, thanks, Daniel. I think in terms of the -- we currently maintain 2018 production guidance at 1.55 million ounces. We will reconfirm it officially during the third quarter production results call. I don't see it at any risk. And the increase, it will mostly come from Kyzyl, but also Kapan will contribute and Mayskoye. Now at Mayskoye, we have struggled a little bit this year with the processing of the oxide ore. But we believe we have the good handle on how to improve the metallurgical performance of this material next year. So there will be an increase coming from Mayskoye as well. And in terms of the cost, I would say that, again, Mayskoye and Kapan would probably demonstrate the improvements next year. But also in terms of all-in sustaining cash cost, I think Varvara would continue to exhibit positive trends, because this year, we should complete the pushback pretty much. We should complete the catch-up with the stripping. And next year, the stripping ratio should normalize, pushing down the unit cost.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [11]

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Okay. Just a quick follow-up, do you have any guidance or target for where Kapan's costs are expected to normalize out there when you've got the asset running to the specifications that you require? And also you mentioned about the low stripping ratio of Varvara. Is that mean that group capitalized stripping costs will -- should come down next year?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [12]

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Yes. In terms of Kapan, I think in terms of all-in sustaining cash cost, we should see next year that at this exchange rate, it's probably around $800, $850 per ounce. And in terms of capitalized stripping at Varvara, yes, it will go down, and push down the overall group spending on cap strip next year, but it will not be particularly noticeable on the group level.

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Operator [13]

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Our next question is from Barry Ehrlich from Citi.

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Barry Lee Ehrlich, Citigroup Inc, Research Division - Director [14]

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So I have 2 questions. So first of all, on inventory and net working capital release in the second half, is it correct that it's going to be in the range of about $150 million? And my second question is with respect to the mine and smelting costs, service cost line break out in the footnotes. And if you just total those to service lines up, they're up more than 50% year-over-year. Are there any specific or nonrecurring developments that affected these service costs? And if you just look -- if we look at last year's development in the service cost lines between the first and the second half, despite the higher sales volumes and a stronger ruble, there was hardly any increase, a very small increase in the absolute service cost between the first and the second half of the year. Is that a sort of the similar -- assuming the ruble is around RUB 60, is that the similar sort of trend we should expect this year? Or will those service costs be rising more significantly into the second half this year?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [15]

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First of all, I think the -- I'll take the first one, and Maxim will take the second. In terms of the working capital release, I'd say we should expect maybe $200 million of working capital released in the second half.

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Maxim Nazimok, Polymetal International Plc - CFO [16]

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Yes, on your second question, I think there are 2 things to bear in mind. If I'm understanding correctly, you're referring to the absolute and not per ounce numbers here?

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Barry Lee Ehrlich, Citigroup Inc, Research Division - Director [17]

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Yes.

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Maxim Nazimok, Polymetal International Plc - CFO [18]

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So definitely, there was a change in scope of the group in the first half 2017 compared to the first half 2016. We have only been consolidating Kapan for 2 months in the first half of 2016, and we have consolidated Komarovskoye since August 2016. So effectively, we have nothing from both Kapan and Komarovskoye in the last year's numbers in the financial reporting. So here, we have significantly more from those mines, which are both in operation and fully consolidated for the first half 2017. So that is kind of a scope change, in addition to a 21%, roughly 21% effect from the ruble appreciation. Speaking about the half-on-half dynamics, both of those mines don't have any significant degree of seasonality. So yes, I think for these, it should be appropriate to expect roughly flat numbers.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [19]

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Another operation that has pretty much appeared this year is Svetloye. Because before the launch of Svetloye in the second half of last year, the bulk of the costs have been capitalized now the end to the operating cost line, so that's another source of the increase in services.

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Barry Lee Ehrlich, Citigroup Inc, Research Division - Director [20]

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So in terms -- so just confirm, into the second half, the services costs may not rise that much?

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Maxim Nazimok, Polymetal International Plc - CFO [21]

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Correct.

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Operator [22]

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Our next question is from Nikolay Sosnovskiy from Prosperity Capital Management.

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Nikolay Sosnovskiy, [23]

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I actually had a couple of questions also. On SG&A costs, which in the first half, increased quite materially, almost 50%, I think that part of it is attributed to production growth and expected production growth next year, and the other part is due to the FX changes. But in your view, have we already reached the new kind of run rate in SG&A? Or in 2018, there will be some further increase? That's my first question.

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Maxim Nazimok, Polymetal International Plc - CFO [24]

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So on this one, well, we will be hiring potentially more people for Kyzyl when it starts up. So that will also be partially reflected in SG&A. Other than that, I won't see any drivers for SG&A to increase in ruble terms.

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Nikolay Sosnovskiy, [25]

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And in terms of people, in your statement, the number of employees have increased like 1,500 people since the end of last year. Is it the kind of final number? Or it will grow materially next year?

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Maxim Nazimok, Polymetal International Plc - CFO [26]

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These are actually half-on-half numbers if I'm not mistaken, so it's high. You're referring to the year-end. I guess, the year-end is actually the weighted average for the whole year of 2016. So yes, there has been an increase of roughly 700 people compared to the full year 2016, mainly coming again through full consolidation of Kapan, and also Komar operations now operating at full scale.

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Nikolay Sosnovskiy, [27]

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Okay. And my second question is on Mayskoye. You've touched briefly the oxide material, which is treated this year. What are your expectations on output next year and at what kind of cost do you expect to see these ounces?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [28]

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Well, we are still working on the metallurgical process, so I wouldn't be able to tell you the hard guidance for the next year. But we would hope to achieve close to 160,000, 170,000 ounces, and in terms of the cost again, I would be reluctant to give you the number. We'll be in a position to answer that question when we report third quarter production results.

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Operator [29]

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Our next question is from Richard Hatch from RBC.

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Richard Hatch, RBC Capital Markets, LLC, Research Division - Analyst [30]

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The first one is just on Kyzyl. You mentioned in your commentary that you might come in a little bit under budget there. Can you give us a view on that, please?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [31]

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Currently, we are roughly 5% under the budget run rate. Whether we'll be able to complete the project below budget, I think it remains to be seen. We still have pretty much almost the full year till the start up.

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Richard Hatch, RBC Capital Markets, LLC, Research Division - Analyst [32]

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Okay. And then the second one on Mayskoye, can you, Maxim, kind of talked to that changing underground mining method. Can you just give an update as to how that's going, please?

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Maxim Nazimok, Polymetal International Plc - CFO [33]

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Well, the underground mining method conversion has been pretty much completed last year, so we don't really see any issues underground. The mine performs very well. We have had metallurgical issues, I have mentioned, but this is related to an open-pit mining oxide ore, and again, I think we are pretty close to resolving this difficulty.

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Richard Hatch, RBC Capital Markets, LLC, Research Division - Analyst [34]

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Okay, so the change in method is proceeding according -- well, it has proceeded according to plan, and you're comfortable with the new method?

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Maxim Nazimok, Polymetal International Plc - CFO [35]

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Yes. Yes, absolutely.

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Richard Hatch, RBC Capital Markets, LLC, Research Division - Analyst [36]

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Yes. And then my final one was just on board changes. If you are in a position to give an update on your -- on the new proposed board members that are coming over the next sort of 6 to 12 months, is that kind of progressing along your expectation? Or what's the update?

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Maxim Nazimok, Polymetal International Plc - CFO [37]

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Well, I'm part of the process, but it is run by the Nomination Committee of the Board of Directors. As far as I know, we -- the board has retained the executive search consultants. The consultants have produced the long list of candidates, and I expect that some meetings will be taking place with the potential candidates over the course of this fall.

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Operator [38]

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Our next question is from Vahe Ovasapyan from Goldman Sachs.

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Vahe Ovasapyan, Goldman Sachs Group Inc., Research Division - Equity Analyst [39]

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I have few questions from my side. Do you want me to ask one by one or all together?

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Maxim Nazimok, Polymetal International Plc - CFO [40]

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Depends on the number of questions.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [41]

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One by one is more convenient, I guess.

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Vahe Ovasapyan, Goldman Sachs Group Inc., Research Division - Equity Analyst [42]

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Yes, let's just have it one by one. So the first one, it's about Dukat. I just want to understand, do we need to forecast the slight improvement of grades or current level of grades will be viewed as normal level for Dukat, going forward?

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Maxim Nazimok, Polymetal International Plc - CFO [43]

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I think given where the silver price is right now, the processing of marginal ore is actually profitable. So we will continue this practice, and the grades should stay across at the level where they are now.

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Vahe Ovasapyan, Goldman Sachs Group Inc., Research Division - Equity Analyst [44]

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On Mayskoye, yes, if I understand it, you don't provide any guidance in terms of costs. But just want to understand, do you expect Mayskoye to be positive on free cash flow level on cash generation level in second half for this year? Or we need to expect it to be positive only starting from 2018?

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Maxim Nazimok, Polymetal International Plc - CFO [45]

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No, it definitely will be cash flow positive for full year 2017, definitely.

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Vahe Ovasapyan, Goldman Sachs Group Inc., Research Division - Equity Analyst [46]

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Understood. And the remaining -- just 2 questions, sales is about -- total cash cost for first half was $650 million, something like that, which is -- yes, which is cost of the upper end of the range. All-in sustaining cash cost is $900 million. As I understand, we need to look at total cash cost and all-in sustaining cash cost for the full year cost to your upper end guidance of the range here. So I just want to understand, which means that absolute total cash cost will be close to $650 million, so like slight decrease from first half, while all-in sustaining cash cost should go down by around at least $150 per ounce. Why all-in sustaining cash cost will go substantially lower versus total cash cost? What is the reason for this?

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Maxim Nazimok, Polymetal International Plc - CFO [47]

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Well, the major reason...

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [48]

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We -- Sorry, you can go ahead, sir.

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Maxim Nazimok, Polymetal International Plc - CFO [49]

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Okay. The major reason that is -- in all-in cash cost components, we have much more fixed cost elements. That includes corporate level SG&A. That includes exploration expenditure, which basically, mostly occurred roughly evenly throughout the year and even more stronger in the first half of the year, and that also is applicable for the sustaining capital expenditure, as we all see significantly larger, like 1.5x larger. Amount of ounces being sold, this will be spread over a large amount of ounces, hence, the relatively stronger decline in all-in sustaining cash cost.

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Vahe Ovasapyan, Goldman Sachs Group Inc., Research Division - Equity Analyst [50]

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Okay, all clear. And the last one is about your free cash flow generation. So on the Slide number, I believe -- on the Slide #11, yes, you provided like rough net debt guidance for the end of -- for this year, which gives us potential free cash flow generation for second half to be close to $250 million, even high, given that you have already announced $6 million of dividends, which will be paid in second half. And actually, last year, you generated around $320 million of free cash flow for the second half 2016. So looks like free cash flow generation capability for first half this year will be close to first half '16 despite the fact that ruble substantially proceeded. Just wanted to understand, what is your confidence that you will be able to achieve these net debt level by end 2017? And the last one is just want again to confirm, Vitaly, you say that working capital release for the second half will be close to $200 million, right?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [51]

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Roughly, yes.

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Maxim Nazimok, Polymetal International Plc - CFO [52]

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Okay. So talking about net debt dynamics in more detail, yes, you are right. We are assuming like $300 million plus free cash flow generation for the second half of the year. And that shouldn't be too much different from the last year's numbers on the back of higher production. And when you look on the exchange rate for the second half, it's been already appreciated quite a bit. So the average exchange rate for the second half of the year was, if I'm not mistaken, very close to RUB 60 per dollar, so not that much different from the current level of the exchange rate that we're announcing. So that looks pretty achievable, given the place where the gold price stands and where the ruble-dollar exchange rate stands at the moment.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [53]

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Just to sum up, we believe that our expectations of free cash flow generations are quite robust. So we believe that the guidance is very good.

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Operator [54]

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Our next question is from Daniel Major from UBS.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [55]

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A quick follow-up on the tax rate. You had a level, I guess, in the usual effective tax rate in the first half of the year, like 20% through the P&L, but you payed a slightly higher cash tax. Can you remind us on the guidance of effective tax rate for the full year, whether you expect that differential between P&L and cash tax to be reversed in the second half?

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Maxim Nazimok, Polymetal International Plc - CFO [56]

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Well, it shouldn't be very difficult to provide for exact guidance between the accrued and actually paid tax. In terms of the effective rate, there are a couple of regional tax incentives that we are now enjoying; one, as mentioned, for the Dukat and Omolon, which is already in place. And yet, the results are in place for Svetloye, which is a so-called regional investment project. Hence, the average exchange -- sorry, the average tax rate, which is now lower compared to what we saw last year. I think, for the full year, it might be slightly higher than what you see in the first half results, but still, pretty close to something like 22% effective tax rate.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [57]

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Okay. And just beyond 2017, what would you expect of effective tax rate medium term be?

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Maxim Nazimok, Polymetal International Plc - CFO [58]

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I think it should stay roughly where it is. There are no current changes in laws both to the positive or to the negative that could materially change the effective tax rate.

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Daniel Edward Major, UBS Investment Bank, Research Division - Director and Analyst [59]

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Okay, so low-20s?

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Maxim Nazimok, Polymetal International Plc - CFO [60]

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Yes.

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Operator [61]

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Our next question is from Boris Sinitsyn from VTB Capital.

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Boris Sinitsyn, VTB Capital, Research Division - Research Analyst [62]

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Two questions on Kyzyl, please. First one, could you please remind me of your plans in terms of million tonnes of waste mined for this year at Kyzyl, and probably, the plan for the next year, if available? The second question is on potential incentives for Kyzyl in terms of tax or any other state-related incentives? Are there any at Kyzyl, and do you plan to apply for any?

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [63]

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I think the overall waste movement this year at Kyzyl will be around 36 million, 38 million tonnes, and this is pretty much the run rate. I think next year, it may be slightly more, but not by much. And in terms of state incentives, no, we do not plan to apply for any. There are some accumulated net operating loss carry forwards at Kyzyl, but that's about it. We prefer to pay our statutory taxes, so as not to get into difficult situations with host governments. I think it's important that host governments now share the financial results of the project. Because if they don't get any taxes, this may well undermine the robustness of the project in the country.

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Boris Sinitsyn, VTB Capital, Research Division - Research Analyst [64]

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Fair enough. I have a follow-up on waste volume. So could you please clarify the following? Actually, a couple of years earlier, when you disclosed the highlights for feasibility for Kyzyl, the volume of waste to be mined was in like 2, 3 years before production start. It was much higher than the numbers you just like said. Could you please explain the -- what was the difference and what has changed in your pre-stripping plan?

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Maxim Nazimok, Polymetal International Plc - CFO [65]

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I think the overall amount of pre-stripping was about 50 million tonnes, and this is pretty much the number which we expect to have by the time all mining starts very early next year. So over this year and last year, we will have mined 50 million tonnes of pre-strip width. And then the average stripping ratio should be somewhere close to 20:1, which at the run rate of 1.8 million tonnes per year, gives you roughly 36 million tonnes of waste plus ore. So there is no discrepancy.

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Operator [66]

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(Operator Instructions) We have no further questions. Dear speakers, back to you for the conclusion.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [67]

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Well, ladies and gentlemen, thank you very much for participation in the call. Please feel free to direct further questions and inquiries to the top management or to the Investor Relations team, and have a very nice day. Thank you. Bye-bye.

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Operator [68]

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This concludes today's conference call. Thank you all for your participation. You may now disconnect.

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Vitaly N. Nesis, Polymetal International Plc - Group CEO & Executive Director [69]

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