Page 119 - RusRPTJul20

9.2.11 ​Metallurgy & mining corporate news
● Gold & Diamonds
Polyus Gold​ has reported modest 1Q20 earnings due to higher SG&A costs​, with management highlighting risks to its 2020-21 production guidance. While this might be somewhat offset by lower-than-guided costs and capex, we see room for consensus earnings downgrades after the 2Q20 operating results. Polyus trades at a 10% premium to Polymetal on 2021F EV/EBITDA, while offering higher operational risk. Our unchanged 12-month Target Price of USD 100 implies a 25% ETR; Buy reiterated. Slightly lower EBITDA on stock-based compensation. EBITDA of USD 569mn (including stock-based compensation) was 2-3% below consensus and our expectations. While total cash costs of USD 395/oz were 4% below our forecast thanks to slightly lower costs across almost all mines, the total SG&A of USD 86mn exceeded our estimates due to the USD 26mn stock-based compensation accrued. The company recorded an USD 873mn combined FX-related loss, USD 437mn of which was related to cross-currency swaps on RUB debt and USD 339mn to an FX loss on USD debt. Production risk to 2020 and 2021. During the conference call, management highlighted the risk of production underperforming not only in 2020, but also in 2021, citing a labour shortage due to the COVID-19 cases at Krasnoyarsk Business Unit (60% of production and EBITDA) and lower stripping as a result. The company plans to provide an update after the 2Q20 production results. We think the guidance might be reduced due to both lower ore throughput and grades at the Olimpiada mine. We do not account for this in our model, estimating 2020F and 2021F production at 2.76mnoz and 2.84mnoz, respectively. In 2020, the company estimates COVID-19 related additional costs charged to P&L at USD 60mn, with USD 10mn to be charged to capex.
Russian diamond major ​Alrosa​ had to suspend the mining at the International mine​ (in its Mirny division) due to a Covid-19 outbreak, the company announced, estimating that the mine could remain shut down for 14 days. "The mine is a key part of the company's Mirny division and produces some of the most expensive diamonds in Alrosa's mix (a $165/carat average price in 2018 versus the group average of $108/carat)," Sberbank CIB commented on June 26. The bank reminds that the mine produced 2.2mn cts last year, accounting for 70-75% of the Mirny division's rough diamond production. The latest 2020 production guidance provided for the division is 2.4mn carats, or 7.7-8.5% of Alrosa's total production guidance.
Whilst there was no major recovery in either the midstream or downstream in May, rough diamond supply cuts deepened thanks to Alrosa and Angola. ​Analysts now see global rough diamond production declining more than 20% in 2020F, with sales down in excess of 30%. However, that so far lags the almost 40% y/y fall in Chinese jewellery sales in 4mo20 and the first COVID-19 related negative print in the US of -27% y/y in March (April-May is to be even weaker). But things remains unclear.
Petropavlovsk​ is in talks with one of its major shareholders, Yuzhuralzoloto (UGC), about a potential merger​, the ​Daily Telegraph reports, citing the CEO of Petropavlovsk, Pavel Maslovskiy. The company has noted that there is an existing dialogue between it and shareholders, but has not confirmed that a specific transaction is being discussed. UGC acquired a
119​ RUSSIA Country Report​ July 2020 ​ ​www.intellinews.com