Dear shareholders,
Polyus Gold followed plans for 2009 that formed part of the strategic program, and demonstrated positive improvments in key financial and operational indicators. The Company produced 1,261 thousand ounces of gold in 2009, compared to 1,222 thousand ounces in the previous year. Our production growth is primarily related to the launch of the Titimukhta project and the purchase of assets in Kazakhstan.
Revenue from gold sales was USD 1,199 million, compared to USD 1,062 million in 2008. This growth is primarily the result of an increase in the weightedaverage gold selling price from USD 867.3 in 2008 to USD 968.7 in 2009, as well as increased production and sales volumes. The Group’s gross profit on gold sales amounted to USD 624 million, showing a 24% year-onyear growth. Gross profit margin amounted to record 51%. Profit for the year amounted to USD 323 million, compared to USD 60 million in 2008. EBITDA showed a 26% increase to USD 549 million. EBITDA margin continued to grow and amounted to 45%.
In the reporting period the Group was highly efficient in terms of its cost control initiatives. Cash operating costs decreased by 2.3% year-on-year to USD 574 million. This reduction was reflected on TCC, which decreased to USD 391 per ounce of sold gold.
The Company's production activity in 2009 was complicated by the continuing changeover at the Group’s key enterprise (Olimpiada Mine) from the oxide ores to work with sulphide ores. Therefore, the production at Olimpiada declined in the year. We expect that the implementation of measures to improve the operational efficiency of the mines, and the experience in dealing with the sulphide ores at Olimpiada will lead to improved performance in the coming year.
A new project, Titimukhta, was launched in 2009 as part of the Company’s program aimed at expanding the existing production facilities. The modernization of Mill No. 3 (located at Olimpiada Mine) was completed early in the year, and in April the first gold bullion was extracted from the Titimukhta deposit. Two problems were solved as a result of launching the project: the Company continues to use facilities that were released after the depletion of the Olimpiada deposit’s oxidized ores and implemented production from a new deposit’s ores with minimum capital expenditure.
Also in 2009, the Company entered the final stage of construction at the Blagodatnoye Mine in the Krasnoyarsk region. Toward the end of the year, all of the mine’s facilities were more than 50% complete, and in early winter, a pilot launch of two technological lines was successfully completed. We are eagerly looking forward to bringing our new mine into operation in the second half of 2010. Blagodatnoye is going to become one of the largest mines in Russia in terms of processing volumes.
In 2009, we continued the construction of our mining operations at the Verninskoye deposit in the Irkutsk Region. In May 2009 a positive opinion from GlavGosExpertiza of Russia was received. All project work was on schedule and we expect to be operational next year.
A new strategy for the Natalka deposit development in the Magadan Region was prepared in 2009. The three-stage concept provides for the opening of mining complex in 2013 with a processing capacity of 10 million tonnes of ore per year with a gradual increase to 40 million tonnes. The project documentation and all of the necessary opinions from the Magadan Region state authorities were received in 2009. The project documentation was then submitted to the Federal Agency for Subsoil Use and GlavGosExpertiza of Russia.
In 2009, the Company continued its exploration program, and expansion of its mineral and raw material base. Nezhdaninskoye operating reserves were listed on the state balance, Bamskoye deposit reserves were approved, and reserves of deep formations of the Olimpiada deposit were evaluated. The total growth in balance reserves amounted to 10.5 million ounces of gold during the reporting period.
The 2009 year was marked by an important event in the history of Polyus Group; OJSC Polyus Gold has become an international company. In August, the Company successfully completed a transaction to acquire 50.1% of shares in KazakhGold Group Ltd., one of the leading gold producers in Kazakhstan. Modernization of the existing KazakhGold enterprises was started in the third quarter of 2009 and was aimed at the reconstruction and expansion of production facilities. Significant investments in the assets of the Kazakhstan business unit are expected to contribute to an increase in Polyus Group’s production volumes in the coming years.
On behalf of the management of OJSC Polyus Gold, I would like to express our gratitude to all of the employees of the Company for their persistence and dedication and equally to the shareholders for supporting our efforts to enhance the Company’s positions in the Russian and global gold mining industry.
Evgueni Ivanov