2016 Polymetal production results

Dias KabyltayevJanuary 30, 2017

For the fifth year in a row Polymetal meets its annual production target (1230 Koz). Production for the year remained virtually unchanged, amounting to 1.27 billion ounces. Such neutral results are resulted from the normalization of the silver in the ore at Dukat. At the same time revenues increased by 3% y/y to $1.583 billion, offsetting the neutral operating results due to higher prices for precious metals in the second half of 2016. 

For the fifth year in a row Polymetal meets its annual production target (1230 Koz). Production for the year remained virtually unchanged, amounting to 1.27 billion ounces. Such neutral results are resulted from the normalization of the silver in the ore at Dukat. At the same time revenues increased by 3% y/y to $1.583 billion, offsetting the neutral operating results due to higher prices for precious metals in the second half of 2016.

Gold production amounted to 890 Koz, which is 3% higher y/y, while the silver production amounted to 29.2 Moz, down 9% y/y. Excellent results of Albazino-Amur, Varvara and Okhotsk enterprises and the contribution of new projects, Svetly (Okhotsk hub), Komarovsky (Varvara) and Kapan contributed to the successful completion of the year. 

Fig.1. Production in 2016      
Gold equivalent (Koz) 2016 2015 y/y
Ducat      369        393   -6%
Albazino-Amursk      244        220   11%
Mayskoye      116        138   -16%
Omolon      170        188   -10%
Voro      129        141   -9%
Varvara        85          72   18%
Okhotsk      131        114   15%
Kapan        26          -     100%
Total    1 270      1 266   0%
Source: Company data      

At Kyzyl project, the main growth project, the Company plans to double ore extraction in 2017. According to the Management, development of the project is progressing in line with the schedule. Commissioning of the project is expected in the second half of 2018. According to our forecasts, the Kyzyl’s contribution to the total Company’s production by the end of 2019 would be approximately 316 Koz, or 18%.

In 2016, the Company received a significant free cash flow before acquisitions ($250 million), and paid a special dividend of $64 million ($0.15 per share). Thus, in 2016 the total amount of declared and paid dividends was equal to $158 million ($0.37 per share). The Company plans to pay final dividends for 2016 in accordance with the approved dividend policy.

As of December 31, 2016, the net debt decreased from $1 469 million to $1 329 million by September 30, and at the same time as a whole has not changed in comparison with the beginning of last year.

The Company confirms its production plan for 2017 and 2018 in a volume of 1.40 Moz and 1.55 Moz, respectively.

It is expected that the cash costs in 2017 will amount to $600-650/oz and total cash cost – to $775-825/oz of gold equivalent. Increased costs are associated with the increase in diesel prices and the strengthening of the Russian ruble amid the backdrop of rising oil prices in Q4 2016.

Capital expenditure for 2017 is $370 million, which is $30 million more than the previous year's plan.

OUR VIEW

In our opinion, Polymetal demonstrated neutral production results, but within the planned production targets. Currently we maintain our "Buy" recommendation with 12M TP of GBp 1004/share, based on the expectations of the gold price continued increase in 2017, confidence in the ability of the implementation of the production plans of the Company and significant progress at the Kyzyl project in 2016.