Nordgold Reports Q3 2011 Financial and Operational Results

Operational Highlights

  • Q3 production at 178.4 thousand gold equivalent ounces (koz), 20.6% ahead of Q3 2010 (Q3 production in dore gold was 192.1 koz and 29.4% growth q-o-q)
  • YTD production at 550.7 koz, 39.4% ahead of the same period last year (YTD production in dore gold was 565.5 koz and 45.1% growth YTD)
  • On track to deliver record production for 2011
  • Extensive capex programme delivering strong progress:
    • Bissa project construction in Burkina Faso progressing rapidly after receiving mining permit; on track to deliver first gold in H1 2013
    • Gross project in Russia in pre-feasibility phase scheduled to conclude soon
    • Exploration activity with a spend of $124m for the year continues at full speed
  • Q3 production marginally below Q2 2011 due to effects of wet season in Guinea which created logistical bottlenecks at the Lefa mine

Q3 Financial Highlights

  • Sales of 149.4 koz gold equivalent ounces, an increase of 0.6% over the same period last year (Q3 2010: 148.4 koz ounces); 28.8 koz retained in stocks at period end
  • Revenue increased 37.2% to US$253.4 million (Q3 2010: US$184.6 million)
  • Normalized EBITDA increased by 43.0% to US$111.3 million (Q3 2010: US$77.8 million).
  • EBITDA margin1 at 43.9% versus 42.1% in Q3 2010
  • Total cash cost per ounce of gold at US$687 (Q32010: US$640 per ounce)

Nine Months to 30 September Financial Highlights

  • Sales of 521.2 koz gold equivalent ounces, an increase of 27.6% (9M 2010: 408.4 koz)
  • Revenue amounted to US$796.9 million, an increase of 64.2% (9M 2010: US$ 485.3 million)
  • Normalized EBITDA increased by 62.5% to US$379.6 million (9M 2010: US$233.5 million)
  • EBITDA margin was 47.6% (9M 2010: 48.1%)
  • Capex increased by 60% to US$197.9 million (9M 2010: US$119.2 million)
  • Cash flow from operating activity increased by 45.1% to US$213,3 million (9M 2010: US$147,0 million)

Nikolai Zelenski commented:

This has been another quarter of strong performance for Nordgold, even though not all production potential has been captured due to the wet season and related logistical interruptions in Africa.Our operational program has built a strong foundation for further robust growth in 2012. We continue to focus on our future growth with the development of Bissa on budget and on time and with pre-feasibility designs at Gross project, while also investing about $130 million in exploration.

Nikolai Zelenski, CEO, Nordgold

Overview

In the nine months to 30 September production has increased by 39.4% to 550.7 koz compared to the previous year, and Q3 production of 178.4 koz is 20.6% ahead of Q3 2010. The Company remains on track to deliver record production for 2011.

Q3 production was slightly lower than in Q2 primarily due to under performance of the African assets during a wet season. With the end of the wet season in Africa, Q4 is expected to be stronger than Q3.

Nordgold is continually working to improve and optimise performance across all its assets, many of which were acquired after periods of under-investment. In particular, in 2011 management has been focused on improvement at the Lefa mine which showed a meaningful increase of 58% y-o-y in Q3 in processed ore volume.

Revenue from metal sales was US$253 million in Q3 2011, versus US$185 million during the same period in 2010, an increase of 37.2%. Nine month revenues increased by 64.2% to US$797 million, reflecting increased production volumes and the stronger average realized gold price of US$1,697 per ounce, 36.4% higher than in the comparable period in 2010.

Nordgold sold 149 koz during the quarter versus 198 koz in Q2, with a significant amount of gold being held in stock rather than sold into a temporarily weak market in the second half of September. As a result, Q3 2011 revenue of $253 million was 15.4% lower than in Q2 2011.

The total cash costs in Q3 2011 showed 4.8% q-o-q reduction to $687 per ounce due to business optimization and further cost control implementation at the Company’s assets. In the nine month period, total cash costs were $677 per ounce. It is expected that cash costs will stabilize at this level due to an improved production profile and less punishing macro environment.

Cash flow from operating activity was US$39.0 million in the third quarter of 2011, versus US$63.3 million during the same period in 2010, a decrease of 38.4% mainly due to reduced sales. For the nine months ended September 2011 cash flow from operating activity increased 45.1% to US$213.3 million which can be mainly attributed to the acquisition of Crew Gold Corporation and the implementation of operational improvements.

Q3 2011 EBITDA was at $111 million, which is $22 million lower than in Q2 2011 mainly due to lower sales volumes as described above. EBITDA margin remains high at 44%, which is slightly lower than the 45% achieved in Q2 2011.

On 30 November 2011, Nordgold’s parent company, OAO Severstal, announced plans to separate Nordgold by way of a Private Exchange Offer, and potentially listing Nordgold GDRs on the London Stock Exchange. This process is expected to complete by late January 2012.

Capital Expenditure Programme

In the first nine months of 2011 Nordgold has invested $198 million on capex programmes, including $77 million on exploration activity, y-o-y increases of 66.0% and 70.8%, respectively. The most significant projects being:

  • Exploration activity across variety of projects aimed at increasing company reserve base.
  • Gross project has entered a pre-feasibility phase, undertaken by consultants Snowden and Ahma.
  • This phase is expected to continue until April 2012 and will cover mine, processing plant and infrastructure design.
  • Bissa has moved into the active construction phase. Lycopodium will complete the design phase of the plant by the end of the year. The first mining fleet equipment has arrived on site. Construction of the mine camp and initial earth works are proceeding as planned. First gold is expected in H1 2013.

Exploration

The Company currently has JORC compliant resources of 22.6 million ounces of gold and prospective reserves of 8.2 million ounces of gold. New resource and reserves figures will be disclosed by the Company at the beginning of 2012 when a Wardell Armstrong report will be available.

Safety

The Improvement of safety across all mines continues to be the Company’s top priority.

As previously announced, Nordgold suffered two fatal incidents in Q3 at the underground Zun-Holba mine in Russia.

The Company is actively implementing a project - “Safety for all” - at all its mines aimed at systemically reducing the number of safety incidents and instilling an improved safety oriented culture. A particular focus of the project remains Nordgold’s three underground mines.

The overall Lost Time Injury Frequency Rate (“LTIFR”) index for the nine month period was 1.98 which is below the 2.82 LTIFR for the comparable nine month period in 2010. This is an indication of the improved discipline and initial effects of the “Safety for all” project.

Outlook

The operational progress made during the year was not fully reflected in the Q3 production numbers due to the wet season in Africa. Nordgold’s production guidance for 2011 now is slightly reduced to 745,000 – 755,000 gold equivalent ounces. Our production guidance for 2012 is between 800,000 and 850,000 gold

Equivalent ounces and the objective remains to reach 1 million ounces in 2013 from organic growth at the existing asset base and Bissa and Gross projects production input.

Nordgold’s capital expenditure budget for 2011 is at US$320 million, with US$124 million going into exploration and evaluation.

The gold price remains strong following a weaker period in September and combined with a better production profile, the board expects to see a strong financial performance in Q4 2011.

Enquiries

A conference call for investors and analysts hosted by Nikolai Zelenski, Chief Executive Officer, and Sergey Zinkovich, Chief Financial Officer, will be held today at 9.00am (London) / 13.00pm (Moscow). The press release and presentation will be published on Nordgold’s website www.nordgold.com at 7.00am (London) / 11.00am (Moscow).

Participant dial in: +7 495 705 9450 (Russia)

Participant dial in: +44 (0)20 7784 1036 (UK)

Conference ID: 4067104

Nordgold
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Oleg Leonov / Maria Shiryaevskaya - Moscow
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