Page 108 - RusRPTAug19

the company. The IFRS results "were affected by the reclassification of the Reftinskaya TPP, which is now treated as an asset held for sale and was revalued by RUB8.4bn," Sberbank CIB commented on August 1, while noting that Enel's Ebitda came in line with expectations. Enel expects the Reftinskaya deal to be completed by the end of the year, after which a 6-12 months transition period would follow, after which the new owner would also purchase several categories of inventory attributable to Reftinskaya.
9.2.11 Metallurgy & mining corporate news
● Gold
Polyus Gold published a good 2Q19 trading update that was generally in line with expectations. We anticipate a strong set of 2Q19 financials, with EBITDA rising 22% q/q to $595mn. Leveraged FCF should be slightly down q/q at $185mn (for a 1.3% yield), as it might be pressured by higher capex and a working capital buildup. We have incorporated an updated $1,400/oz gold price forecast for 2020 into our model and run a scenario-based valuation with a gold price of $1,500/oz in the bull case. We raise our target price 5% to $59.00 per GDR and reiterate our BUY recommendation. Consolidated gold output grew 14% q/q and y/y to 684 koz in 2Q19. The q/q growth was due to seasonally higher production from heap leaching and alluvials, while Natalka accounted for most of the y/y growth. The average grades of key brownfield assets Olimpiada and Blagodatnoye grew a respective 7% and 12% q/q, in line with our expectations. As production in 1H19 totalled 1.3 moz, and since output in 2H is usually higher than in 1H (last year the uptick in 2H was 20% H- o-H), we believe that Polyus is on track to meet its full-year output guidance of 2.8 moz. Reported gold revenues were $886mn, up 20% q/q, so we expect total revenues to increase 19% q/q to $896mn. The increase in processing grades at Olimpiada and Blagodatnoye together with an increased by-product credit from antimony sales (on the conference call the CFO estimated that antimony-rich concentrate sales will have doubled q/q) should fully offset the 2% appreciation of average RUB/$q/q, so we expect TCC to decrease 2% q/q to around $350/oz. We see EBITDA rising 22% q/q to a record-high $595mn, for a 66% margin. Polyus will report 2Q19 financials on August 6. Polyus reported a 21% q/q increase in net debt to $3.6bn in 2Q19, mainly due to the repayment of $472mn in cross-currency swaps (which were not included in net debt) with a ruble-denominated loan (which is included in the debt figure). This does not change our valuations, as we previously included these cross- currency swaps into our net debt calculation for valuation purposes. We project a quarterly FX loss of around $45mn on the company's ruble debt (assuming ruble appreciation of 4% between the end of March and the end of June and around $1.1bn in ruble debt). Therefore, we estimate LFCF in 2Q19 at $185mn, slightly down q/q, as it might be pressured by higher capex ($200 250mn including capitalized stripping, up from $146mn in 1Q19) and a working capital buildup.
● Steel
Russian metals major Novolipetsk Metallurgical Kombinat (NLMK) reported 3% decline of revenues quarter-on-quarter in 2Q19 to $2.8bn, but still beat the consensus expectation by 3%. Ebitda in the reporting quarter also beat the forecast by 5%, growing by 6% q/q to $735mn. In June NLMK cashed in on its record-high capitalisation and sold 2.6% out of the 84% stake of the main shareholder Vladimir Lisin in an accelerated book building SPO. BCS
108 RUSSIA Country Report August 2019 www.intellinews.com