Polymetal primed for production pick-up

Russian gold and silver miner Polymetal may be more indebted than its peers, but its shares' discount to the market has provided a useful entry point for gold bugs.

August 25, 2016

by Alex Newman

With average precious metal prices flat year-on-year, and planned production declines leading to 10 and 7 per cent respective falls in gold and silver ounces sold, the accompanying 67 per cent rise in net earnings in Polymetal International's (POLY) half-year figures takes a little explaining. The biggest contribution was a $66m (£50m) non-cash gain on the retranslation of dollar-denominated debt in the period, though a lower average rouble exchange rate compared to 2015 also reduced operating costs.

IC TIP: Buy at 1170p

The latter effect was felt despite domestic inflation and a planned decline in average grades at the Okhotsk and Omolon mines, which brought total cash costs down from $552 to $514 per gold equivalent ounce. An uptick in capital expenditure in the period meant that all-in sustaining cash costs fell by a smaller amount, though the Russia and Kazakhstan-based miner used these results (and weak domestic currencies) to reduce full-year exploration and development costs by 11 per cent to $310m.

According to Bloomberg consensus forecasts, the market is anticipating full-year adjusted EPS of $1.12 and pre-tax profits of $616m for the December year-end, up from 80¢ and $276m in 2015.