Polymetal delivers strong Q4, confirms two fatalities

Polymetal reported its fourth quarter and full year production results for 2016 on Thursday, confirming two fatal accidents in the quarter - at Varvara on 8 October and at Okhotsk on 6 October.

The FTSE 250 company said that while the total number of fatalities for the year decreased to four compared to six in 2015, it could not view the result as satisfactory.

“Polymetal remains committed to the implementation of additional measures to fully eliminate fatalities at all of its operations,” the board said.

The firm still delivered a strong performance in the fourth quarter, producing 375 Koz of gold equivalent, which was a 21% increase on the 310 Koz produced in Q4 2015.

That brought total gold equivalent production for the year to 1,269 Koz, slightly above the production guidance of 1,260 Koz.

A strong finish to the year was driven by solid performance at Omolon and contribution from new operations - Svetloye, Komar and Kapan, the board said.

Gold production for the quarter was at 285 Koz, up 30% year-on-year, while silver production was 7.0 Moz, down 3% from 2015.

For the full year, gold production was 890 Koz, up 3% year-on-year, while silver production was 29.2 Moz, a decrease of 9% compared to 2015.

In 2016, the company generated significant pre-acquisition free cash flows of approximately $250m, and paid out special dividends of $64m - or 15 cents per share - which brought the total amount of dividends declared and paid during 2016 to $158m, or 37 cents per share.

Polymetal confirmed its commitment to pay final dividends for 2016 in accordance with the regular dividend policy.

Net debt as at 31 December decreased to $1.33bn, from $1.47bn as of 30 September, and remained broadly unchanged year-on-year.

At Kyzyl, the firm said construction activities remained in line with the project schedule, with the first deliveries of processing equipment arriving on site.

Permitting was now 100% complete, and Kyzyl remained on track to produce its first concentrate in the third quarter of 2018.

“Polymetal continues to deliver a strong operating performance, driving solid cash flow and meaningful dividend payments,” said group CEO Vitaly Nesis.

“2016 is the fifth consecutive year that the Company meets its production guidance.

“In 2017, we will continue to focus on delivering free cash flows and dividends, moving Kyzyl towards completion, and advancing our long-term project pipeline.”

Looking ahead, the company reconfirmed its production guidance for 2017 and 2018 of 1.40 Moz and 1.55 Moz of gold equivalent, respectively.

Production in both years would be skewed towards the second half, in line with previous years, the board said.

The increase in production in 2017 would be driven by Varvara, Okhotsk, Оmolon and Kapan, which Polymetal claimed should offset the grade declines at Dukat and Voro.

Cash costs for 2017 were expected in the range of $600-650 per ounce and all-in sustaining cash costs at $775-825 per ounce gold equivalent, above unchanged 2016 guidance of $525-575 per ounce and $700-750 per ounce respectively.

The increase is due to rising domestic diesel prices and strengthening of the Russian rouble on the back of oil price growth in the fourth quarter of 2016.

Polymetal’s capital expenditure guidance for 2017 was $370m, an increase of $30m compared to the previous guidance, with additional investments to be directed towards the new project pipeline including Nezhda, Prognoz, and Viksha.