Polymetal loses its shine on RBC downgrade

RBC Capital Markets downgraded Polymetal International to ‘sector perform’ from ‘outperform’ and slashed the price target to 810p from 1,460p.

RBC said Polymetal remains an “industry-leading” precious metals company. However, it pointed to increasing gold price volatility, high levels of 2017 capex and a higher free cash flow break-even price than peers.

The bank said that with the group’s production growth comes significant capex, with next year likely to be the peak for capex spending at the Kyzyl gold project.

RBC said that that while there is potential for more pressure on precious metals prices in the near term, through 2017 there is upside risk to inflation concerns and this should be very positive for gold, eventually.

“On our base case $1,300/oz POLY still generates a 10% free cash flow making the valuation attractive. We also expect that POLY will have the ability to navigate any financial pressure through 2017.”

However, the bank said it sees the potential for the stock’s multiple to erode further, as it has done through the fourth quarter.

“POLY's net debt to EBITDA at FY16E 1.8x could erode rapidly in a lower gold price environment,” it said.

At 0930 GMT, the shares were down 4.2% to 750.50p.