Page 131 - RusRPTNov19

$285mn, for a 2% yield (we include some of Polyus's operations with derivatives in our FCF calculations). Polyus will report its 3Q19 IFRS results on November 5.
Polymetal reported strong 3Q19 production results and indicated that it could exceed its 2019 output guidance by up to 50 koz . The company noted additional cost pressures from higher royalties due to the increase in the gold price but left its 2019 cost guidance unchanged. Reported net debt indicated good FCF generation of around $90mn in 3Q19. At the spot gold price and the current USD/RUB rate, the stock is trading at a 2020E EV/EBITDA of 7.4, a leveraged FCF yield of 6% and a dividend yield to be paid in 2020 of 5% (based only on regular dividends at a 50% payout from adjusted net income). Production grew 7% y/y in 3Q19 to 476 koz of gold equivalent, with strong performance across the assets. Polymetal indicated that its full-year production guidance of 1.55 moz of gold equivalent could be exceeded and could reach up to 1.6 moz. This would be in line with our forecast (published in our recent report). Polymetal noted that higher gold prices have increased the cost of royalties paid, though it maintained its 2019 TCC guidance of $600-650/oz of gold equivalent and AISC guidance of $800-850/oz of gold equivalent. Net debt remained flat Q-o-Q at $1.7bn. As the dividend paid in 3Q19 was $94mn, this indicates that Polymetal's leveraged FCF may have reached $90mn during the quarter, for a 1.3% yield (versus negative FCF in the third quarter of 2018). We note that the bulk of Polymetal's FCF generation typically comes in 4Q. Polymetal CEO Vitali Nesis told Reuters yesterday that the company may recommend a special dividend for 2019 if the gold price stays around spot levels through the year-end. We believe that Polymetal could pay at least $100mn in special dividends in this case, as its net debt/EBITDA could reach 1.4 at the year end, below the medium-term target of 1.5.
Russiangoldminer P olymetal ,oneofRussia’slargestproducersofgold and silver in the country, is the latest to join the go-green wave that is building amongst Russia’s leading corporates. The company has opened talks with leading European banks to raise “green” financing for its projects. CEO Vitaly Nesis expects a deal to be closed in the second half of 2020, Reuters reported on October 25. Polymetal is hoping to raise green financing for four projects including the construction of a solar power plant and the reduction of water consumption at its deposits which need total investment of $60mn-$70mn within the next 3 years, Reuters reports.
Russian diamond major Alrosa reported a 23% quarter-on-quarter decline in diamond sales in 3Q19 to 6.4mn carats and a 25% q/q decline in the production to 12mn carats, which pushed its inventories up by 36% q/q to 22mn carats. As reported by bne IntelliNews, Alrosa, a one-time investors' darling, is having a terrible year with diamond sales sliding to a two and half year low . This month Alrosa made an effort to improve its investment case by pledging to pay dividends for 2H19 even if cash flow turns negative. "Alrosa’s 3Q19 trading update delivered no surprise: diamond production seasonally increased, while sales were sluggish due to weak demand reported by the company in monthly sales reports," BCS Global Markets commented on October 18. Nevertheless, BCS GM sees the 3Q19 trading update as neutral and believes that the stock is long-term attractive in expectations of diamond market recovery in 2020. "The company says that in 2H of 3Q19 there destocking has started in the midstream, so market should recover going forward," the analysts wrote and maintained a Buy recommendation on the
131 RUSSIA Country Report November 2019 www.intellinews.o