Page 177 - RusRPTSept21

electricity loss rose 1.26ppts y/y to 8.85%.
9.2.11 Metallurgy & mining corporate news
● Gold & Diamonds
Polyus, Russia’s largest gold producer, reported a stable 2Q21 trading update on 12 August. The company reported refined gold production of 671koz (+4% y/y) in 2Q21. However, total gold production was down 3% y/y to 672koz due to lower volumes of gold in concentrate (0.1koz vs. 44.1koz in 2Q20), as the company has the capacity to process most of its concentrate in-house. The stronger volumes of ore mined (+12% y/y) and milled (+11% y/y) led to higher production volumes (+14% y/y, 78koz) at Vernonskoye. Natalka, the company’s newest asset, delivered encouraging results last quarter, with its higher-grade material (1.37g/t in 2Q21 vs. 1.26g/t in 2Q20) and improved recovery (71.8% in 2Q21 vs. 70.5% in 2Q20) resulting in stronger 2Q21 production figures (+13% y/y, 125.3koz). Lower volumes from the company’s high-cost alluvial operations led to a drop in gold production in 2Q21 (-15% y/y, 25.2koz). The company re-iterated its 2021 production guidance of 2.7mnoz after reporting gold production of 1,373koz for 1H21. Sales volumes in 2Q21 remained static (+1% y/y, 679koz), while gold revenue was up 7% y/y to $1.23bn thanks to stronger realized gold prices (+5% y/y, $1,815/oz). Polyus’ net debt declined 6% y/y to $2.366bn.
Alrosa reported weak 2Q21 financials, driven by an free cash flow to equity (FCFE) miss, as advances from the midstream decreased to normal levels.
Having slightly raised our 12-month Target Price to RUB 125, we reiterate Hold. The diamond market positives are priced in, in our view, given the 7.1x EV/EBITDA 2022F. We think the lower FCFE outlook for 2H21 and uncertainty over production in 2022 and onwards might check the company’s outperformance.
Cost pressures mount. Although EBITDA of RUB 45.5bn was 3% above our and the consensus expectations, it reflects the accounting of inventories. The cash cost of production was RUB 2.5bn, or 10% above our estimates, mainly due to higher MET and consumables, and services costs. The latter, we think, reflects sector-specific inflation in the Russian Far East. As a result, the production cost of USD 51.90/ct was 4% up YoY, despite the 22% YoY increase in production.
177 RUSSIA Country Report September 2021 www.intellinews.com