Polymetal adjusted earnings rise despite increased costs

Polymetal International announced its preliminary results for the year to 31 December on Wednesday, with revenue increasing 10% over 2015, to $1.58bn.

The FTSE 250 firm said average realised gold and silver prices increased by 8% and 11% respectively, with gold sales at 880 Koz, up 2% year-on-year, and silver sales at 30.7 Moz, down 2% year-on-year, in line with the board’s “production volume dynamics”.

Group total cash costs were $570 per gold equivalent ounce, up 6% from 2015 levels and within Polymetal’s original guidance of $550 to $575/GE oz.

The company’s all-in sustaining cash costs amounted to $776/GE oz, up 6% year-on-year, slightly above the guidance range of $700 to $750/GE oz, which the board said was driven mostly by an increase in total cash costs and the appreciation of the Russian rouble against the dollar in the second half of the year.

Adjusted EBITDA was $759m, an increase of 15% year-on-year, on the back of higher commodity prices and stable production, with Polymetal’s adjusted EBITDA margin 48% compared to 46% in 2015.

Net earnings were $395m, against $221m in 2015, reflecting an increase in EBITDA and the impact of foreign exchange gains driven by the strengthening of the rouble.

Underlying net earnings - adjusted for the after-tax amount of write-down of metal inventory to net realisable value, foreign exchange gains/losses and change in fair value of contingent consideration liability - were $382m, up 31% year-on-year.

Polymetal said capital expenditure was $271m, up 32% compared to 2015 but below the reduced guidance of $310m, due to favourable exchange rate dynamics in the beginning of the year.

The group was reportedly on track with the construction of Kyzyl and the POX debottlenecking project.

In the course of 2016, the company said it continued to generate significant pre-acquisition free cash flow, which amounted to $257m - up from $263m.

Net debt of $1.33bn as at 31 December remained broadly unchanged over the previous year, bringing the net debt-to-adjusted EBITDA ratio at year end down to 1.75x, compared to 1.97x at the end of 2015.

A final dividend of 18 cents per share, totalling approximately $77m and representing 30% of the group's underlying net earnings for the second half of 2016, was being proposed by the board in accordance with its current dividend policy.

That would bring the total dividend declared for the period to $179m.

“I am delighted to report robust earnings for the year on the back of a strong operating performance", said Polymetal group CEO Vitaly Nesis.

“Delivering solid free cash flows and dividends reaffirms the strength of our strategy and allows us to advance our long-term project pipeline while sustaining cash returns to our shareholders.”