Successfully responding to global tensions
In 2023, the international market’s take on the confluence of continuing global geopolitical tensions, slowing growth pace of the Chinese economy and recessionary fears were reflected in the gold price reaching a new, all-time high.
Gold price,
US$/oz
Silver price,
US$/oz
Despite another year of high interest rates and bond yields, markets were again perturbed by looming recessionary fears and ongoing global geopolitical conflicts, which made investors lean towards safe-haven assets such as gold. In first half of 2023, along with peaking interest rates, the gold price reached its lowest point at $1,811/oz before beating the 2022 all-time high and reaching $2,078/oz during the second half of the year on the back of elevated geopolitical and security risks, along with indications of rate cuts in 2024. The average LBMA gold price in 2023 was $1,943/oz, an increase of 8% compared with the previous year.
In 2023, gold demand remained strong at 4,448 tonnes, only 5% below the very exceptional 2022, when the world saw post pandemic re-opening and escalating military conflict between Russia and Ukraine. The momentum for gold accumulation, as seen in recent years, continued into 2023 — over 1,037 tonnes were added to central banking reserves, with China purchasing the most, while Kazakhstan was one the biggest sellers in efforts to support the local Tenge.
Despite an elevated gold price, jewellery demand proved strong and remained on a par with 2022 at 2,093 tonnes. The removal of COVID restrictions in China — the world’s largest jewellery consumer — paved the way for a substantial hike in the demand for jewellery in 2023. China’s annual jewellery consumption increased by 10% year-on-year to 630 tonnes, which was partially offset by India’s price sensitivity and as a result lower-carat gold jewellery purchases.
The third consecutive annual gold ETF outflow, along with the weakening demand for bars and coins, pulled overall investment demand down to 945 tonnes — a 15% year-on-year drop (2022: 1,113 tonnes). In 2023, soaring global inflation, record-high bond yields and waves of liquidity issues within the banking sector attracted investors to a strong US dollar and risk-free government bonds away from the gold investments.
COVID-relief payments from governments to re-energise business did not spare the technology market. Notwithstanding advances in artificial intelligence, major chip manufacturers experienced a downturn, which was in turn reflected in gold demand. Tech demand for gold dropped by 4% year-on-year to 298 tonnes, sinking below the 300 tonnes mark for the first time.
Having started the year by largely tracking gold dynamics, the silver price reached an annual low of $20.1/oz in March. It did not then, however, see the same dramatic upturn as gold with investors more inclined to stick to the more reliable safehaven offered by gold. And, although silver briefly rallied to $26/oz in April on the back of geopolitical and economic uncertainties, it failed to maintain the momentum and averaged $23.3/oz for the year, up 7% (2022: $21.8/oz).
During 2023, the US, the EU and Japan continued to apply sanctions against Russia and prohibited industrial goods and technologies exports.
Implications for Solidcore and responses
The lack of access to consumables, spare parts and equipment imposed a risk to the Company’s operations and development projects. Procurement continued to adapt to the current environment by replacing sanctioned equipment, consumables and spare parts with alternatives from Russia, China and other countries.
In 2023, Russia and Russian companies, banks and individuals continued to be exposed to international sanctions, which affected ongoing business, investment projects, international trade and financing. Russia in turn introduced counter-sanctions, which among others included restricted capital movements and corporate actions for residents of ‘unfriendly’ jurisdictions.
Implications for Solidcore and responses
The Group strictly adheres to all relevant laws and has implemented comprehensive measures to ensure compliance with all international sanctions and counter-sanctions. In 2023, the Company completed re-domiciliation from Jersey to Astana International Financial Centre (AIFC) in Kazakhstan to avoid further unfavourable treatment in Russia and ensure that the Company is able to execute corporate actions aimed at restoration of shareholder value.
Unfortunately, on 19 May 2023, the US Department of State designated Polymetal’s Russian subsidiary. The Board of Directors of the Company set up a Special Committee of Independent Non-Executive Directors to develop an appropriate response and ensure that this external challenge was addressed in the best interests of the Company, its shareholders and other stakeholders. In February 2024, the Group entered into contracts for the divestment of its Russian business through a sale of 100% JSC Polymetal’s shares to a third party, JSC Mangazeya Plus. On 16 February 2024, US Department of the Treasury’s Office of Foreign Asset Control (OFAC) confirmed to the Company that it would not impose sanctions on non-US persons, including Polymetal International, for participating in or facilitating such a transaction. On 7 March 2024 the transaction was approved by the Shareholders General Meeting and, following receipt of required regulatory approvals, was completed on the same day.
Throughout 2023, the global economy continued to face the consequences of soaring inflation. Moreover, demand-pull factors, supply chain disruptions, ongoing geopolitical tensions and sanctions against Russian commodities all contributed in elevating consumer prices. Estimated 2023 global inflation reached 6.8% (Russia — 7.4%, Kazakhstan — 9.8%, US — 3.4%).
The Russian Rouble demonstrated significant devaluation relative to 2022. Continuous geopolitical escalation, capital outflows and a $169.4 billion decrease in exports, as a result of deteriorating oil prices, pulled the Rouble rate to a staggering 101 RUB/$ in August 2023. Towards the year end, the Rouble improved on the back of an emergency 8.5 cumulative percentage points rate hike (to 16%) by the Central Bank of Russia and the introduction of capital control measures. The average annual Rouble rate was 85.3 RUB/$ (2022: 68.6 RUB/$).
Although consistent geopolitical tension within the CIS region, strengthening of the US Dollar and the weakening average oil price of $82 per barrel (2022: $101 per barrel) posed significant pressure, the Kazakhstan Tenge remained steady at 456 KZT/$ (2022: 461 KZT/$), on the back of increased oil exports along with the significant realisation of foreign currency and gold reserves by the National Bank of Kazakhstan.
Implications for Solidcore and responses
The Group’s revenue and over 72% of borrowings are denoted in US Dollars and China’s Renminbi, while the majority of the Group’s operational costs are denoted in Russian Rouble and Kazakh Tenge. As a result, changes in exchange rates affected the Company’s financial results and performance.
Revenue for 2023 grew by 8% to $3.0 billion ($0.9 billion in Kazakhstan and $2.1 billion in Russia) due to higher gold and silver prices. Although domestic inflation imposed significant pressure on costs, the devaluation of the Rouble in the second half of 2023 allowed the Company to meet its cost guidance.