Page 101 - bne IntelliNews Russia Country report May 2017

gold and Chinese companies have been targeting gold mine acquisitions, Reuters noted on May 31. The consortium retains an option for another 5% in Polyus until May 31, 2018, at a price of $77.66 per share, while the deal took place at $70.6 per share, a statement by Polyus Gold said. The whole company is valued at about $9bn, given the pricing of the acquisition, according to Polyus. The company still has 1.15% in treasury shares, 6.76% free floated, and 81.88% of shares held by Polyus Gold International Limited (PGIL) controlled by billionaire Suleiman Kerimov. It is not clear whether Polyus is still considering an SPO, which was planned by the end of spring 2017, according to previous reports.
Alrosa 1Q17 results of modest earnings offset by stronger FCF. Alrosa’s 1Q17 EBITDA was 2% below our expectations, hit by the accounting treatment of inventories, but FCF of RUB 35bn exceeded our estimates by 17%, which is positive. Therefore, despite the weaker earnings, the company continued deleveraging rapidly, with ND/EBITDA declining to 0.3x. While a strengthening rouble puts pressure on the short-term earnings outlook (3% QoQ stronger in 2Q17 so far), we focus on the average diamond price recovery QoQ due to quality mix normalisation, which might result in comparable 2Q17 earnings, despite seasonally lower sales volumes and a stronger USDRUB. While the outlook for the rest of the year is heavily dependent on USDRUB, the company offers an attractive 2017F EV/EBITDA of 4.7x and FCF yield of 13% on spot USDRUB. Our 12-month Target Price of RUB 140 implies an ETR of 62%.
Russian steel major MMK saw its revenue rise 5% q/q to $1.66bn, the company said on May 10. Still, the growth in revenue was offset by the company's increased costs as slab cash cost surged by $66/tonne (up 28% q/q) to $301/tonne, the highest figure since September 2014. This rise can mostly be attributed to higher raw materials prices (over $50/tonne) and the stronger ruble, VTB Capital said in a research note. The company's Ebitda declined 7% q/q to $452mn. Free cash flow declined by 88% q/q to $15mn due to the high $211mn working capital accumulation. Net profit declined 8% q/q to $241mn.
Russian iron producer Evraz has entered into an agreement to sell Sukha Balka, its iron ore asset in Ukraine, for $110mn. It has production capacity of 3.1mnt and in 2016 output was over 2.5mnt of lumpy ore. Last year, the asset generated revenues of $145mn and $26mn in EBITDA. The implied multiple of 4.2x EV/EBITDA 2016 is, in our view, fair given the low valuation of Ferrexpo (3.3x EV/EBITDA 2017), a traded iron ore mining company. However, the additional cash flow from the transaction improves the probability of Evraz deleveraging below 2x by the end of 1H17 and thus resuming dividend payments.
Gold miner Polymetal has announced that it is acquiring another 25% in the Dolinnoye gold property in Kazakhstan for $1.6mn, increasing its share to 50%. The asset has 696koz of resources, of which 202koz are reserves. The company expects production to start in 3Q17. Kazakhstan remains the company's strategic region and this transaction shows that once more. However, this acquisition is not seen having any material impact on the company’s fundamentals. Polymetal trades at 6.8x EV/EBITDA 2018F and pays a dividend yield of 8-9%, one of the highest in global gold industry.
Russian iron works Mechel reported good 1Q17 results with revenue amounted to RUB77.4bn (-3% Q/q), EBITDA to RUB22.8bn (-7% Q/q), and
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