Polymetal sees decent improvement in first quarter gold production

Polymetal International issued its production results for the first quarter ended 31 March on Wednesday, reporting 295 Koz of gold equivalent production, a 5% year-on-year increase.

The FTSE 250 company claimed strong performances at Albazino, Varvara, and Svetloye, which more than compensated for the grade-driven decline at Omolon.

Gold production for the quarter improved 8% over the previous year to 214 Koz, while silver production declined 3% to 6.0 Moz.

First quarter revenues were up 19% year-on-year to $354m, which was reportedly driven by volume growth, higher commodity prices, and a lower impact from seasonal refinery closures compared to the previous year.

Silver sales traditionally lagged production due to the seasonal increase in concentrate inventories, the board explained.

That working capital build-up was expected to reverse by year-end, whereas gold sales volumes were largely in line with production.

At Kyzyl, Polymetal said construction activities were expected to be complete slightly ahead of schedule.

Dry commissioning of the processing plant was expected to start on 1 June, while first concentrate production was expected on 1 August.

Net debt widened to $1.58bn as at 31 March from $1.42bn on 31 December, which the board said was primarily due to the accumulation of silver inventory and seasonal advance purchases of diesel fuel and other consumables.

Free cash flow generation in 2018 would, as was usual for Polymetal, be weighted towards the second half of the year.

The company said it remained on track to produce 1.55 Moz of gold equivalent in 2018, and reiterated its annual cost guidance for total cash costs in the range of $650-$700 per gold equivalent ounce, and all in sustaining costs in the range of $875-$925 per gold equivalent ounce.

Polymetal said its cost guidance remained contingent on the rouble-dollar exchange rate dynamic, which had a “significant effect” on the group's operating costs.

In April, Polymetal increased its ownership in the Prognoz silver property to 50%, which was the largest undeveloped primary silver deposit in Russia.

An updated JORC-compliant mineral resource estimate and a preliminary economic assessment for the asset would be published in the fourth quarter.

The company also reported a fatal accident on 3 March at its Kapan operation, in which an underground miner died from gas poisoning.

Polymetal said its management team was currently developing a comprehensive action plan aimed at mitigating the risks associated with air quality and efficiency of ventilation in underground mines.

The first steps included the purchase of additional air monitoring equipment, including the introduction of remote air quality sensors throughout the firm’s operations.

“We got off to a steady start in 2018 with stable production results at all our mines,” said chief executive Vitaly Nesis.

“The successful launch of Kyzyl will demonstrate Polymetal's ability to successfully deliver on new projects while continuing to efficiently run our existing operations.”