Page 117 - RUSRptSept18

to $5bn in 1H. Previously, the company posted $2.74bn revenues and $544mn in the first quarter. Reportedly, in late July the En+ lobbyist in Washington Mercury requested pausing sanctions . Mercury reported to the OFAC (Office of Foreign Assets Control) that Deripaska has resigned from the board of En+, committed himself not to seeking re-election as a director of Rusal, and had the CEO and seven directors he appointed in Rusal, and a president and a director in En+, all resign. Mercury requested brief relief from sanctions so that En+ can finalise the last measures, such as converting Rusal shares of commodity trading major Glencore into En+ shares, as well as to "discharge an existing loan" held by Russian state-controlled bank VTB, and continue work "with Mr. Deripaska and his family to transfer their assets to approved organisations or trustees."
Polymetal is considering selling its 42.65% stake in the Veduga mine . There is no clarity on either the timing or the potential valuation of the deal. According to Polymetal’s annual report, the mine generated revenues and net income of $36mn and $11mn, respectively, in 2017, while its net assets were $39mn. The mine produces about 100koz of gold contained in ore and sells ore to various processing plants nearby (including Polyus and Polymetal). Reserves under Russian standards (GKZ) were 2.4mnoz at 5.3g/t (corresponds to mineral resources under international standards). While the median EV/resources multiple for recent deals in the CIS stands at $65/oz, we doubt that the asset could attract a multiple this high; indeed, in 2012 Polymetal sold a stake in it for $13/oz. Polymetal recently underperformance of the company is trading at an attractive 2019F EV/EBITDA of 5.5x, 18% below the average of global peers, with the Kyzyl ramp-up being the nearest positive catalyst for the name.
Russian steel maker Evraz reported strong 1H18 results on August 8 in line with consensus despite higher costs. Strong steel and vanadium prices drove EBITDA up 65% y/y, which we believe partially explains the ~45pp outperformance vs. peers YTD. However, we remain cautious on the cycle in the medium term, and leave our 2019F EBITDA forecast unchanged. Although we are adjusting our 12-month Target Price up 7% to GBP450 on the weaker GBP, that now implies an ETR of -9% and so we are downgrading Evraz to Sell. In our view, the stock prices in an overly upbeat scenario for steel and vanadium. EBITDA marginally below as costs grow. EBITDA of $1.91bn was 1% below our forecast mainly on slightly higher cash costs at the Steel and North America segments. At the Steel segment, SG&A and Other costs came out 16% above our estimates. At the North American division, ex-raw materials expenses unexpectedly went up 17% y/y, as production growth drove head-count, repairs and consultancy costs up (and ahead our estimates). Generous dividend despite weaker than expected cash flow. While the capex run-rate in 1H18 was below the 2018 guidance of $600-700mn, FCFE of $582mn came out below expectations ($900mn) due to the larger working capital build-up of $594mn (primarily driven by inventory growth). Nevertheless, the company announced a generous $0.40 (~GBP31) second interim dividend (5.5% yield), which accounts for 100% of FCFE (130% together with the first interim announced in May), in line with other best dividend payers in the Russian M&M sector.
The major state contract for the construction of mega-icebreaker “Leader” that will keep the Northern Sea Route clear of ice around the year was awarded to the iconic Zvezda shipyard and will be built in Russia's Far East region by the oil major Rosneft, its holding company Rosneftegaz, and Gazprombank, Kommersant d aily reported on July 28 citing unnamed sources. Rosneft and Rosneftegaz are controlled by influential Kremlin insider Igor Sechin, who was repeatedly used the investment in
117 RUSSIA Country Report September 2018 www.intellinews.com