Page 121 - RusRPTNov18

Alrosa has reported a positive the third quarter of 2018 production report, as gem-quality prices showed a better than expected QoQ rise to $199/ct, the highest since 2Q14. Output was below our estimates, due to seasonal maintenance, which is going to revert in the fourth quarter of 2018, while better than expected grades at key mines means that 2018 output guidance is likely to be achieved. BCS unchanged 12-month Target Price of RUB 130 implies a 45% ETR: Buy reiterated.
Polyus Gold released strong the third quarter of 2018 operating results on October 16. Total gold output increased to 691 koz, up 8% y/y thanks to production from Natalka, which contributed 43 koz of gold during the quarter (or 6.7% of the company's total y/y production growth). Natalka reached its designed capacity by end-the third quarter of 2018, but the ball mill at the project was subsequently shut down, which led to a decline in processing volumes. The company plans to put the ball mill back in operation in November 2018 and quickly bring Natalka back to its designed capacity. It was also noted that there are plans to conduct maintenance at Natalka in December. Production at Natalka is expected to come in at 150 koz this year, the slight delay in its ramp-up does not affect estimates. At Olimpiada, the company is still feeding rich material through the mill, so the processing grade in the third quarter of 2018 was 4.12 g/tonne, versus the mining grade of 3.48 g/tonne. This brought total production at Olimpiada to 350 koz, up 2% y/y. The company reported gold revenues of $821mn, up 12% y/y. Net debt at the end of the third quarter of 2018 totalled $3,029mn (versus $3,208mn at the end of the second quarter of 2018), which implies leveraged free cash flow for the third quarter of 2018 of $179mn for a 2% yield.
Polymetal ’s Kyzyl mine in Kazakhstan. Thanks to its successful commissioning, the mine is now the company’s flagship mine, leading the transition away from legacy assets in the portfolio. Subject to fulfilling the remaining milestones, management sees meaningful upside to production and life-of-mine, which we estimate at 27% of the company’s NAV. The majority of this might be realised as soon as in 1Q19, in our view. BCS unchanged 12-month Target Price of GBp 840 offers 20% ETR: Buy reiterated. Kyzyl is Polymetal’s flagship asset. The mine is set to be the largest by production (330koz) and the lowest by costs in Polymetal’s portfolio. With NPV of $1.3bn, it accounts for 27% of the total NPV of the company’s mining assets. Successfully cracked the challenging asset. Given the open-pit mining and production of concentrate on site, the mine’s flowsheet is the opposite of that in previous studies prior to Polymetal acquiring Kyzyl. It enabled the company to be on track with both timing and budget, thus significantly improving the company’s track record.
Polymetal is considering selling Kapan in Armenia to Chaarat, Interfax reports. However, the company has also stated that at this stage there is no certainty of the deal being completed. The exact impact on the company’s fundamentals would depend on the details of the potential deal, and thus we treat the news as neutral for the company at this stage. Bankers value the asset at $70mn (it was acquired for $35mn), and so in any case we would not treat the deal as marginal. Polymetal might use the cash for special dividends, which could be slightly positive for sentiment. Polymetal trades at an attractive 2019F EV/EBITDA of 6.0x, below the median of global quality peers of 6.6x, with the smooth ramp up of Kyzyl and production upside being positive triggers for the company. Buy reiterated.
121 RUSSIA Country Report November 2018 www.intellinews.com