Download 2004 Annual Report - Polymetal

Denis G. Pavlov,Head of TreasuryDepartmentStanislav Y. Kalaidin,Head of Planning& BudgetingDepartmentAu sales structureVorontsovskoyeDukatmln. $USLunnoeBarun KholbaKhakanjinskoyeNote:The Borun − Holba deposit sold in 2004Ag sales structureDukatmln. $USLunnoeKhakanjinskoyeIn 2003, Polymetal obtained a li−cense from the Russian Ministryof Economic Development andTrade to directly export gold (andin March 2004, the company ob−tained a license for direct silverexports). Prior to receiving theselicenses, all sales of precious met−als were limited to the local Rus−sian market . Since then, the com−pany has exported gold and silverdirectly to Switzerland, the UnitedKingdom and the United ArabEmirates (beginning in Decemberof 2003). Polymetal is currentlyworking on expanding the numberof countries that it exports to. Ac−cording to 2004 results, exportsaccounted for 7% of gold salesand 25.2% of silver sales.Production costsAs a result of significant growthin 2004 production, productioncosts also increased from $55.8million to $92.9 million. This 66%growth was in line with the 69% in−crease in equivalent gold produc−tion. Cost increases were uneven.Tax payments (excluding profittax) grew by 56% and amortiza−tion costs increased by 92%, (dueto the launch of new productionplants). Costs of raw and othermaterials were up 33% comparedto 2003 figures. In 2003, severalfacilities were put into operationand at that stage productionlagged behind monetary expendi−tures. However, in 2004 produc−tion increased more rapidly thanmaterial expenditures. Thus, perunit costs declined. Total operat−ing costs (excluding personnelcosts) grew by 67% and reached$64.5 million.Personnel costs (salaries) grewby 33%. This can be attributedto two factors − the launch of theKhakanjinskoye deposit and thesystem of directly linking salariesto production volumes at the fa−cilities.As a result, the expenditurebreakdown at Polymetal changed.The proportion spent on materi−als and spare parts decreasedfrom 49% in 2003 to 38%in 2004, and the portion forProduction costs17