Page 142 - RusRPTAug21

to 1H22. Overall, we note the company continues to run ahead of its 1.50mnoz gold eq. guidance for 2021 and see low-to-mid single digit upside risk to it.
Cost guidance reiterated, capex upside is likely to materialize. Management reiterated its TCC/AISC guidance for 2021 at $700-750/oz and $925-975/oz, which we think is achievable. However, Polymetal noted upside risk to capex for 2022 onwards, citing additional expenditures required to keep key projects (mainly POX-2 and Nezhda) on schedule, given the worsening COVID-related disruptions in 2Q21. However, management expects capex to remain within the previously disclosed range: its bullish outlook is still that the 2021 guidance of $560mn will be achieved, and that 2022 onwards is likely to be at the higher bound of the upside range provided during the April investor day (see our Polymetal International – Investor day; leading climate change commitments and insights into LT output). This is already accounted for in our model.
Working capital build-up drives higher net debt. Nevertheless, reported net debt was slightly above our expectations. Management concedes the existence of one-off work-in-progress build-up due to challenging logistics to China (concentrate exports from Kyzyl) related to 4x longer customs checks at the border due to COVID restrictions. While management said it hopes this will be reversed in 2H21, we think there is a risk that it would not be if the COVID situation worsens globally.
Investment projects remain on track despite intensified COVID-related challenges. Management reiterated the commissioning date for the Nezhda mine (+13% vs. 2021 Polymetal output guidance and 12% of our 2022F EBITDA) as 1 November, which we expect to be a positive trigger for the stock. Furthermore, investment the decision on longer-term projects (Veduga and Prognoz) might be also taken as planned in 4Q21, despite COVID-related disruptions.
Stronger earnings for 1H21. We expect supportive 1H21F earnings from Polymetal, mostly thanks to the 12% y/y increase in revenues and 14% y/y higher EBITDA, which we estimate at $688mn. We estimate the total cash cost to rise 10% y/y to $692/oz, as macro-driven costs inflation might be partly offset by a 4-6% y/y weaker RUBand KZT. Based on the company’s dividend policy of 50% of adjusted net income for 1H, we expect Polymetal to announce DPS of $0.46 (a 2.2% dividend yield).
● Steel
Russian steel major Magnitogorsk Iron and Steel Works (MMK) announced restarting the steel-making capacity at its 2.3mn tonne EAF-based (Electric arc furnace) plant in Turkey MMK Metalurji in 2H21. MMK plans to reach an output of 2mn tonnes within the next nine months, according to Interfax. MMK plans to sell 0.9mn tonnes of HRC (Hot rolled coil steel) on the Turkish domestic market, with the remaining 1.1mn tonnes planned for further re-rolling. The restart of the EAF unit will require an investment of $40mn along with a working capital deployment of $200mn.
142 RUSSIA Country Report August 2021 www.intellinews.com