➤ Polymetal International PLC, Russia's second-largest gold producer, is seeing increased attention from investors in the wake of a string of recent accidents at Arctic mining group PJSC Norilsk Nickel Co., according to CFO Maxim Nazimok.

➤ Mining and growth projects have progressed without delays during the pandemic, and the group has identified vulnerable points in its supply chains in the event of further disruption.

Polymetal CFO Maxim Nazimok. Source: Polymetal International PLC

Polymetal International operates nine mines in Russia and Kazakhstan. It is nearing completion of a second pressure oxidation plant at its Amursk POX hub and is planning a third facility on Russia's Far Eastern coast for processing third-party material. The company raised production 2% year over year and increased sales 3% in the second quarter despite the challenges presented by the coronavirus pandemic. The following is an edited transcript of an interview with CFO Maxim Nazimok.

S&P Global Market Intelligence: Several of the largest Russian mining companies had a tricky second quarter with the coronavirus outbreak at PJSC Polyus and the boardroom wrangling at Petropavlovsk PLC, but Polymetal looks to have had a steadier ride. How difficult has it been to operate under these unusual conditions, and would performance have otherwise been even better?

Maxim Nazimok: I think the only thing which could have gone better is something which is not probably very visible to external parties, and this is mostly like internal improvement projects, but otherwise, on the production side, on the core functions, since we operate most of our operations as remote mines, there wasn't a lot of a difference. We had a pretty hectic couple of weeks, maybe three or four weeks when the lockdown emerged, to set things up. But otherwise, it's very quickly started to resemble business as usual without any need to commute to the office.

What were the main challenges during those difficult weeks?

The first one was to ensure the continuity of the operations so to make sure that we were good to operate under the restrictions. Most of the problems were concentrated around being able to bring personnel in for the incoming shifts and bring the outgoing shifts out of the mine site, especially when this was related to cross-border transfers, because we used to have quite a [few] Kazakhstani employees on our Dukat mine. And the other thing where we concentrated our effort was to make sure that the suppliers and contractors also deliver on their [contractual] obligations. Finally, there was a very short period of time where uncertainty was huge in terms of what happens to the banking sector and to our sales, so we had to ensure that we had enough liquidity and firepower to continue operating, even if we saw either liquidity crunches in the banking market or interruption of sales, but neither of the two really materialized as a risk.

The Dukat plant in Russia's Far Eastern Magadan region. Source: Polymetal International PLC.

How has the coronavirus affected the company and operations?

We very quickly introduced a mandatory two-week observation period, and that helped to prevent any major outbreaks at the mine sites similar to what Polyus experienced. So the isolated cases were indeed identified — I think this was more or less inevitable given the spread of the infection — and effectively isolated from the rest of the workforce.

We didn't really record any severe cases, so fortunately, we didn't have to kind of deal with inefficiencies of the medical system in remote areas and actually managed to support those local small and often aging hospitals with equipment and with consumables. But luckily, as I said, we didn't really encounter any issues where the condition of a person deteriorated or where we lost a person due to improper medical treatment.

Construction and development of Nezhda and POX-2 have been progressing on schedule. Have you planned for contingencies if any coronavirus-related disruptions emerge?

I think in terms of construction projects, the biggest risk we faced was delivery of equipment or personnel on site. [In Russia, like in Europe], most industrial operations pretty much continued operating, so we don't have any failures or delays on delivery of major processing equipment by the suppliers. So I think if any second wave emerges, this will continue to be the case; we will just have better emergency preparedness, so we will already know what to do and what are the tricky points in the supply chain that we need to monitor. The other thing we did, and this applies both to projects and to existing operating mines, we increased the amount of so-called insurance stockpiles for key consumables and spares, so again, we are better secured against possible disruptions.

Polymetal struck an off-take deal with Wiluna Mining Corp. Ltd. at the end of March for refractory concentrate from its Western Australian mine. Are there any more deals like that in the offing, and have you progressed any further with plans for a third POX plant?

This is part of a longer-term business strategy. We do think that processing refractory material is a significant competitive advantage that we already have in hand. For many junior miners, this is a very big hurdle on their way to production because building refractory processing capacity on their own is a pretty tall order. This is capital intensive as well as technologically complex and so on. So for many junior miners or explorers, like Wiluna, this is a very nice option for having a guaranteed off-take; it pretty much de-risks the path to securing funding for starting mining and being able to deliver on their reserves. So we do work on further potential opportunities like this and we are really moving on the concept of a potential third POX plant, which could be entirely dedicated to processing third party [feed].

Polymetal's Albazino open pit in Khabarovsk Krai. Source: Polymetal International PLC

How far have you got with those plans?

The location is identified, and everything else is pretty much in the scoping-study stage. The location would be in the Khabarovsk region of Russia, but at the seaport; the name is Sovetskaya Gavan. The location has been carefully chosen to have both access locally, through rail for potential Russian suppliers, and also from the sea for potential international suppliers with concentrate.

Would you be able to get some funding from the Far East and Arctic Development Fund for that?

We are not counting on this. The deal already announced for POX-2 is a nice deal, having 10-year funding at 5% in ruble terms. That being said, we could have funded the project entirely from free cash flow, and I think this will be the case for the potential POX-3 as well.

Norilsk's string of accidents over the last few months has highlighted some of the risks of operating in the far north and remote areas, in some cases with aging infrastructure. How does Polymetal plan for these kind of risks?

Well, I think this is actually already kind of ingrained in our project development processes, so we do comply with the local Russian regulations, which are quite tight on this, and sometimes we go beyond this as well. We don't really have a lot of aging infrastructure in our operations, so most of the mines that we operate, we have built ourselves from scratch — the only exception actually being Dukat, which has had some historical Soviet infrastructure, but even that was gradually replaced through our years of operation. Anything that we have built ourselves was carefully designed to take account of the permafrost and related risks and is being carefully monitored as part of our ongoing procedures to prevent the Norilsk-type of risk.

Is it a concern that that kind of accident makes the whole industry look bad?

What we do see is definitely an increased level of attention from investors and from equity analysts as well, so apart from everyone now being a virologist, now they are also gradually becoming climate-change specialists. [As happens] with all of the publicly important accidents, the topic will attract increased attention, but it's pretty much the same as happened with the tailing storage facilities a couple of years ago with the Vale SA disaster in Brazil.