Strengthening rouble sends Polymetal earnings south

Polymetal International issued its preliminary results for the year ended 31 December on Monday, reporting a 15% increase in revenue year-on-year to $1.82bn.

The FTSE 250 company said that was primarily driven by gold equivalent production growth of 13%, with gold sales up 24% to 1,090 Koz, while silver sales were down 14% to 26.5 Moz, which the board said was in line with production volume dynamics.

Its average realised gold and silver prices remained largely unchanged from 2016, at $1,247 per ounce and $16.1 per ounce, respectively.

Group total cash costs were $658 per gold equivalent ounce for the year, up 15% from 2016 levels and at the lower end of the board’s updated guidance of between $650 and $675.

The increase in total cash costs was primarily driven by the strengthening of the Russian rouble on the back of the recent oil price rally, and stabilising macroeconomic conditions in Russia.

All-in sustaining cash costs amounted to $893 per gold equivalent ounce - also within the company's updated guidance, and an increase of 15% year-on-year, which was said to have been mostly driven by the same factors, as well as significantly increased exploration spending across the portfolio.

Adjusted EBITDA was $745m, down 2% compared to 2016, as increased costs incurred due to a stronger Russian rouble largely offset the production growth.

The adjusted EBITDA margin was at 41%, compared to 48% in 2016.

Net earnings were $354m, down from $395m in the prior year, which Polymetal said reflected the decrease in EBITDA and the impact of foreign exchange gains on 2016 earnings.

Underlying net earnings were $376m, down from $382m.

The company’s capital expenditure came in at $383m, up 41% compared to 2016, which the board said was due to accelerated pre-stripping and construction at Kyzyl, as well as an increased brownfield exploration spend across its operating assets portfolio.

It added that it remained on track with the commissioning of Kyzyl, and the ramp up of the de-bottlenecked POX plant in the second half of 2018.

Net debt increased to $1.42bn during the period, widening from $1.33bn at the end of 2016 and representing a net debt-to-adjusted EBITDA ratio of 1.91x.

Despite intensive construction activities at Kyzyl in the course of 2017, the company said it continued to generate “meaningful” free cash flow that amounted to $143m, down from $257m year-on-year, while maintaining stable net cash operating inflow of $533m, up slightly from $530m.

A final dividend of 30 cents per share per share, which at $129m represented 50% of the group's underlying net earnings for the second half of 2017, was proposed by the board in accordance with its revised dividend policy and in compliance with the hard ceiling of net debt-to-adjusted EBITDA ratio of below 2.5x.

The board said that would bring the total dividend declared for the period to $189m.

"I am delighted to report strong operational delivery and robust earnings for the year", said Vitaly Nesis, Group CEO of Polymetal.

“While we have reached peak capital expenditure during 2017 ahead of the launch of the Kyzyl project in Q3 2018, the group continued to deliver positive free cash flow and generate meaningful cash returns to our shareholders.”