Polymetal announced 3Q2017 operating results

Andrey KozhokaruOctober 17, 2017

In 3Q2017 Polymetal produced 470k ounces of gold equivalent (+26% y/y). Svetloye, Mayskoye, Albazino-Amursk, and Varvara contributed the major part of the production increase.

In 3Q2017 the Company produced 470k ounces of gold equivalent (+26% y/y). For the reporting period gold production increased by 38% y/y to 370k ounces, silver production decreased by 7% y/y to 7.4m ounces. The growth in gold production in 3Q2017 came from a significant increase of the heap leach operations at Svetloye, which was fully ramped up. The Company produced 57.3k ounces of gold (+290% y/y) with a higher grade of 4.8 g/t (+27% y/y) at Svetloe. Another part of the production growth was derived from the processing of oxide ore at Mayskoye, total production of which reached 80.5k ounces of gold (+70% y/y). The gold production at Albazino-Amursk in 3Q2017 grew by 24% y/y to 89.2k ounces corresponding to better grades and higher recovery levels. As previously reported, for optimization of operations at Varvara hub, the Company transports higher-grade ore from Komar mine for subsequent processing at Varvara plant. This redistribution of mining and processing operations allowed to increase gold production in 3Q2017 at Varvara by 39% y/y to 29.7k ounces. The quarterly production of silver decreased owing to lower grades at Dukat at 329 g/t (-15% y/y).          

Polymetal confirmed its production guidance for 2017, 2018 and 2019 at 1.4m, 1.55m and 1.7m ounces of gold equivalent, respectively. The Company confirmed its 2017 total cash costs and all-in sustaining costs guidance at $600-650 and $775-825 per ounce of gold equivalent, respectively.   

Polymetal’s net debt equaled $1 599m at 30 September 2017 relative to $1 583m at 30 June 2017.

In its report, the Company highlighted that construction at Kyzyl continues firmly on schedule: all processing equipment was installed and all electrical infrastructure is prepared. The current construction works focused on the completion of the tailings storage facility. First ore at Kyzyl is expected in March 2018, first concentrate production is scheduled for 3Q2018.           

Our opinion:

Operating results for 3Q2017 match our expectations. As expected, with decreasing production at Dukat, Polymetal increases its output at Svetloye, Albazino-Amursk, Mayskoye, and Varvara. We expect that the Company will further increase its output in 4Q2017 on account of a seasonal factor, and eventually meet its production guidance for 2017 at 1.4m ounces of gold equivalent. Polymetal kept its costs guidance for 2017, noting the risk of Russian ruble appreciation. According to our expectations, in the absence of significant and persistent appreciation of Russian currency and in case of the planned increase of production for last part of the year, Polymetal’s cash costs will match given guidance range or slightly exceed it.            

Taking into account the execution of the Company’s operating plans according to schedule and the favorable current conjuncture at precious metals market, we keep our Buy recommendation with 12M TP of 931GBp per share.