It's a funny old world, mining and selling gold and silver. In his review of 2016, Polymetal International (POLY) chairman Bobby Godsell reflected on "an air of optimism and hope that the down-cycle in the precious metals market" looked to be ending by the mid-year point. If that rally had been well served by unpredictable political events and unchartered monetary policy experiments until the summer, volatility in the oil market and the "unexpected results of the US elections" in the second half of the year conspired to burst the bubble. Now "a certain relaxation in geopolitical tensions" - presumably between Russia and the US - is cited as a renewed source of business stability, however definitive that ultimately proves.
If this makes for a sometimes confusing summary, then it still encapsulates two big stories for Polymetal in 2016. The first, well-served by political unpredictably, was price: although sales of silver and gold were flat, price rises of 10 and 11 per cent, respectively, pushed up the top line. The second, underscored by higher energy costs and the resultant strengthening effect on the rouble, was the 6 per cent increase in all-in sustaining cash costs to $776 (£628) per gold equivalent ounce - a theme particularly evident at the Mayskoye and Kapan mines, where costs struggled to break even.
Overall costs were also in advance of guidance of $700-$750 an ounce, although favourable currency exchange rates at the beginning of the year meant capital expenditure came in $39m below reduced predictions.
This year, assuming gold prices stay above $1,200 per ounce, the company believes it should continue to generate "meaningful free cash flow" in 2017, even though all-in sustaining costs are expected to edge up to between $775 and $825 an ounce of gold equivalent with higher oil prices. As is the case with gold miners, how meaningful that is to shareholders also depends on whether the group can hit the upper end of its 1.4m-1.55m ounce production forecast.
For its part, Numis expects underlying pre-tax profit of $429m and EPS of 80¢ in 2017, rising to $564m and 80¢ in 2018.
POLYMETAL INTERNATIONAL (POLY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 982p | MARKET VALUE: | £4.2bn | |
| TOUCH: | 981-982p | 12-MONTH HIGH: | 1,191p | LOW: 645p |
| DIVIDEND YIELD: | 3.5% | PE RATIO: | 13 | |
| NET ASSET VALUE: | 228¢ | NET DEBT: | 136% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢)† |
|---|---|---|---|---|
| 2012 | 1.90 | 651 | 110 | 81.0 |
| 2013 | 1.71 | -158 | -51.0 | 9.0 |
| 2014 | 1.69 | -138 | -53.0 | 41.0 |
| 2015 | 1.44 | 276 | 52.0 | 51.0 |
| 2016 | 1.58 | 564 | 93.0 | 42.0 |
| % change | +10 | +104 | +79 | -18 |
Ex-div: 4 May Payment: 26 May £1=$1.24. †Includes special dividends of 50¢ in 2012, 20¢ in 2014, 30¢ in 2015 and 15¢ in 2016. | ||||
