Polymetal revenue rises, but strong rouble drags

Polymetal International reported a 15% increase in revenue to $683m in its half-year report on Tuesday, which it said was driven by production growth and tighter management of the seasonal gap between production and sales at Dukat, Omolon and Albazino.

The FTSE 250 firm said gold sales in the six months to 30 June were up 19% year-on-year to 380 Koz while silver sales were 12.4 Moz, down 5% year-on-year and “in line” with production volume dynamics.

Average realised gold and silver prices remained largely unchanged from the first half of 2016.

"Our stable operational results in the first half of the year largely offset the negative impact of a stronger Russian Rouble on our financial performance while free cash flow declined, as expected, primarily due to the peak capex required to advance the Kyzyl project", said group CEO Vitaly Nesis.

“We expect stronger production, lower costs and materially higher cash flow generation in the second half of the year.”

Group Total cash costs were $656 per gold equivalent ounce, up 28% year-on-year, which the board said was driven predominantly by the appreciation of the Russian rouble against the dollar on the back of “stabilising” macroeconomic conditions in Russia and Kazakhstan.

All-in sustaining cash costs amounted to $906/GE oz, also an increase of 20% year-on-year, driven mostly by the same factors.

Both cost measures were expected to decline in the second half on the back of seasonally higher production and sales, particularly at Mayskoye and Okhotsk.

Adjusted EBITDA was $257, down 12% year-on-year as a result of increased costs incurred due to the stronger Russian rouble, which was partially offset by an increase in production.

The Adjusted EBITDA margin was 38% compared to 49% in the first half of 2016.

Net earnings were $120m, compared to $165min a year ago, reflecting the decrease in EBITDA and non-cash foreign exchange gains year-on-year.

Underlying net earnings - adjusted for the after-tax amount of write-down of metal inventory to net realisable value, foreign exchange gains and change in fair value of contingent consideration liability - were $117m, down 6% year-on year.

The board said regular dividends for 2016 of 18 US cents per share were paid in May, and it proposed an interim dividend of 14 cents per share, up from nine cents per share a year ago.

Polymetal said the increase represented 50% of the group's underlying net earnings for the period, and was proposed in accordance with the revised dividend policy, while complying with a hard ceiling of a net debt-to-adjusted EBITDA ratio of below 2.5x.

Net debt increased to $1.58bn during the period, from $1.33bn, representing 2.19x of last 12 months’ adjusted EBITDA, which the board said was driven by a seasonal working capital increase and intensive construction activities at Kyzyl as capital expenditure for the project was expected to peak this year.

As in prior years, free cash flow generation was set to be be skewed towards the second half of the year, driven by higher production and an expected seasonal working capital drawdown.

“Polymetal remains on track to meet its 2017 production guidance of 1.40 Moz of gold equivalent,” its board said in its statement.

“TCC and AISC are expected to trend downward in 2H to meet the original FY 2017 guidance range of US$ 600-650/GE oz and US$ 775-825/GE oz, respectively.