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Russian issues impact Polymetal

The Ukraine crisis has put pressure on most Russian-related stocks, and gold miner Polymetal is no exception
August 28, 2014

It’s been a tough 18 months for gold miner Polymetal International (POLY). Not only have precious metals prices tanked, causing earnings to fall dramatically, but the crisis in Ukraine has hit sentiment towards most Russian-related stocks. Polymetal is no exception, with its shares close to a 12-month low.

IC TIP: Hold at 533p

The good news is that the rouble has depreciated sharply against the dollar, bringing down local operating costs. Cash costs of production fell 20 per cent year-on-year to $627 per gold-equivalent ounce in the first half, also helped by the mining of higher-grade ore. All-in cash costs – a more meaningful figure that includes exploration and other hidden costs – were down an even-better 22 per cent to $938 an ounce as Polymetal reined in spending.

This saw adjusted cash profits climb 30 per cent year on year to $310m. That was despite flat turnover: decreases in the average gold and silver prices of 10 per cent and 21 per cent respectively offset 12 per cent growth in the volume of metal sold, to 560,000 gold-equivalent ounces.

Broker RBC Capital has hiked its EPS forecast to 69¢ this year due to the lower operating costs, though EPS is expected to fall to 56¢ in 2015 as Polymetal increases development spending. Prior-year figures in the table were skewed by $305m of impairment charges against its mining assets and goodwill, due to lower metals prices.

POLYMETAL INTERNATIONAL (POLY)

ORD PRICE:533pMARKET VALUE:£ 2.1bn
TOUCH:532-534p12-MONTH HIGH:793pLOW: 470p
DIVIDEND YIELD:1.8%PE RATIO:22
NET ASSET VALUE:459¢NET DEBT:58%

Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2013721-265-661
2014727141268
% change+1--+700

Ex-div: 03 Sep

Payment: 26 Sep

£1=$1.67