Page 122 - RusRPTNov18

According to Polymetal CEO Vitaly Nesis, quoted by Interfax, the Nezhda mine, which is slated to commence production in approximately 2021, could produce 200-250koz of gold per year . The company’s previous production guidance was 150koz of gold per year, and so this amounts to increases of 50% for production at the mine and 5% for the company. This could add 6% to our 2022-23F EBITDA forecast. 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.
Russian steel major Severstal reported third-quarter IFRS financials, with 9% quarter-on-quarter revenue decline to $2.1bn, 12% q/q Ebitda decrease to $768mn, and net profit down by 18% q/q to $455mn. The revenues and earnings came largely in line with consensus expectations, while bottom line was 11% below the consensus on non-operational losses. At the same time the company managed to contain the free cash flow decline at 20% q/q, keeping the FCF at $481mn in the third quarter, or 4% above expectations on lower capex and resulting working capital release. Severstal’s board of directors also recommended a RUB44.39/share or $0.68/GDR dividends for the reporting quarter, which translates into 4.2% yield or 115% of FCF for the quarter. The management also maintained an upbeat outlook for the fourth quarter on high steel demand and continuous environmentally-driven cut of capacity in China. BCS Global Markets commented on October 22 that the short-term outlook was too positive as steel prices in Russia and globally continue to decline. Earlier this week another steel major Evraz rose eyebrows announcing an ambitious investment plan on what is seen as a market on a downwards cycle . "While the company [Severstal] has once again reported light capex and provided a positive surprise in terms of the high dividend payout ratio, we think the outlook for prices suggests that earnings are going to be more modest in 4Q18 (and, hence, yields)," VTB Capital commented on October 22. Severstal trades at 2019F Enterprise Value /Ebitda of 5.9x, which VTB sees as "fair". The bank's 12-month target price of $17 implies an 18% estimated total return (ETR), Hold recommendation reiterated.
Evraz has reported a weak 3Q18 trading update, with steel and coal concentrate production below our expectations . As prices were slightly below our estimates, the numbers suggest a low-single digit risk to our 2018F earnings numbers. Noting that spot vanadium, coal and steel prices in the US provide robust cash generation for the name, we expect Evraz’s valuation to become demanding when price spikes revert. Our unchanged 12-month Target Price of GBp 450 implies a -4% ETR: Sell reiterated. Crude steel output down more than guided. Total crude steel output was down 10% QoQ to 3.1mnt, which is weaker than we expected due to a 12% QoQ decrease in steel output in Russia. In addition to the negative effect of scheduled maintenance at BF#3, there was also an accident at BF#1 in August. As a result, pig iron output fell 11% QoQ, coming weaker than the company had guided (-8%). On the positive side, the company sees it recovering 3-5% QoQ in 4Q18. Russian steel sales mix slightly worse, prices underperformed benchmarks. The structure of steel sales was also slightly worse than we expected, with a higher share of semis in the mix (49%), while rebar prices underperformed the benchmark (down 7% QoQ vs. flat benchmark). Vanadium sales expectedly down. Vanadium sales were down as no inventory release was recorded during the quarter and they were also affected by scheduled maintenance. The weak numbers did not come as a surprise after the lower guidance for 2018 given during the investor day. Coal mining
122 RUSSIA Country Report November 2018 www.intellinews.com