Seasonal downturn, lower grades hit Polymetal

A seasonal downturn and declines in grade saw volumes and sales take a hit at Polymetal in the first quarter, it revealed in a production update on Friday.

The FTSE 250 company produced 260 Koz of gold equivalent in the first quarter, down 4% year-on-year, mainly due to an expected grade decline at its mature Okhotsk operations, a one-off release of work in progress at Voro in the same period a year earlier and the processing of lower grade stockpiles at Varvara.

It said all the other operations had strong performances, and Varvara was expected to improve wit the purchase of the Komarovskoye deposit.

Quarterly gold production was 169 Koz, down 9% year-on-year, while silver production was 7.2 Moz, up 6%.

On the sales side of things, Polymetal sold 243 Koz which lagged production by 17 Koz of gold equivalent, which it blamed on seasonal factors such as New Year stoppages and annual contract re-negotiations.

The firm expected to fully reverse the lag in sales during the remainder of the year.

Polymetal’s net debt increased by 7% during the period, to $1.383bn, as a result of the seasonal sales lag and increased spending on the Kyzyl project and equipment purchases.

"We are on track to deliver on our production and cost targets for the current year and remain on track regarding the Kyzyl development project", said Vitaly Nesis, Group CEO of Polymetal, commenting on the results.

"I regret to report a fatal accident involving a Polymetal employee at the Dukat underground mine and I would personally like to extend my heart-felt condolences to the family and friends of our colleague who lost his life in this tragic accident."

The company reconfirmed its production guidance of 1.23 Moz of gold equivalent in 2016, along with its total cash cost guidance of $525-$575 ounce and all-in sustaining cash costs of $700-$750 per ounce of gold equivalent.