Polymetal production down in second quarter

Polymetal International posted its production results for the second quarter and six months to 30 June on Tuesday, with quarterly production in line with the company’s plans at 262 Koz of gold equivalent.

The FTSE 250 firm said that amounted to a 12% year-on-year reduction, primarily due to the planned grade declines at Okhotsk and Omolon as well as traditionally volatile quarterly grade performance at Dukat.

Its board said production for the first half was 522 Koz of gold equivalent, down 8% year-on-year in line with the 2016 production plan.

Materially stronger production is expected to be driven by seasonal de-stockpiling of the Mayskoye concentrate, the start-up of the Svetloye heap leach at Okhotsk, and stronger grades at Dukat and Okhotsk, Polymetal’s board said.

The company continued to generate free cash flow in the second quarter and paid a $55m final dividend, though it said free cash flow generation is expected to be significantly stronger in the second half driven by stronger production and the traditional seasonal working capital drawdown.

“Polymetal remains on track to meet our annual production and cost guidance. We have also made remarkable progress in ensuring sustainable medium-term growth,” said group CEO Vitaly Nesis.

“With the recent commodity price increase, we remain strongly committed to free cash flow generation and the payment of regular dividends.”

Polymetal reported the start of full-scale construction at Kyzyl during the period, with an initial focus on external infrastructure and bulk earthworks for the processing plant building and auxiliary structures.

It said the receipt of the final mining permit and the arrival of the full mining fleet on site enabled a smooth ramp-up of the open pit operations, with the project on track to produce first concentrate in the third quarter of 2018.

Operational turnaround activities at the recently acquired Kapan mine started in the quarter, with the medium-term guidance to be released along with the FY2016 production results.

Polymetal said the acquisition of Komarovskoye is expected to close in the third quarter, with detailed integration plans drawn up and ready to be executed immediately after the transfer of ownership to Polymetal.

The company reported two fatal incidents at the Albazino and Dukat underground mines during the second quarter, with the board saying Polymetal “continues to implement additional measures to reinforce safety risk management procedures in order to fully eliminate fatalities at its expanded underground mining operations.”

Polymetal confirmed it remained on track to meet its 2016 guidance of 1.26 Moz of gold equivalent at TCC of $525-575/GE oz and AISC of $700-750/GE oz.