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Polymetal contains costs and boosts production

An unwinding of working capital in the second half should help to boost the miner's cash generation and balance sheet
August 21, 2018

An 11 per cent jump in gold-equivalent production, a 6 per cent rise in the average realised gold price and flat all-in sustaining costs: put these changes together, and you see why adjusted cash profits climbed a fifth in Polymetal International’s (POLY) first half.

IC TIP: Buy at 644p

Big dividend payments, negative free cash flow and a seasonal increase in working capital: combine these metrics, and you see why net debt edged up 16 per cent in the period to $1.65bn (£1.29bn), despite a 12 per cent drop in year-on-year capital expenditure.

With production ramping up, balance sheet gearing looks to have finally peaked. Working capital is expected to pare back in the second half, as working capital commitments unwind and production and sales increase from both Mayskoye and Svetloye, alongside the ramp-up at Kyzyl.

Assuming all else remains equal, a secondary effect of growing output from the three sites will be a decline in all-in costs, which are already in the bottom half of the full-year guidance range of $875-$925 per gold-equivalent ounce. Confident that will lead to a swing to free cash flow, Polymetal has upped its dividend to 50 per cent of underlying net earnings.

On average, analysts forecast full-year pre-tax profits of $507m and EPS of 91.8¢, rising to $688m and $1.26 in 2019.

POLYMETAL INTERNATIONAL (POLY) 
ORD PRICE:644pMARKET VALUE:£2.91bn
TOUCH:643-644p12-MONTH HIGH:984pLOW: 578p
DIVIDEND YIELD:5.7%PE RATIO:9
NET ASSET VALUE:302¢NET DEBT:121%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
20176831502814
20187892104017
% change+16+40+43+21
Ex-div:06 Sep   
Payment:28 Sep   
£1=$1.28