Page 121 - RusRPTDec18

$600/oz on the reserve grade, so bankers think our forecast is achievable upon full ramp-up in 2019F. Capex might be below the guidance. FCFE of $142mn was below our estimate of $192mn, reflecting the build-up of ore inventories at Olimpiada and Natalka. At the same time, IFRS capex of $198mn was lower than expected thanks to the deceleration of spending on Natalka and Olimpiada. As such, bankers now think the company might perform better than its $850mn guidance (management accounts) given in the second quarter of 2018. Management reiterated production guidance for 2018 (the upper bound of the 2.375-2.425mnoz range) and improved the TCC guidance to below $400/oz (BCS expects TCC at $356/oz in 2018F).
Russia's gold and silver producer Polymetal launched construction of new mine Nezhda in Eastern Siberia, which is expected to start contributing to its dividends by 2022 after $234mn of capital investment, Reuters said on November 12 citing the company. "Nezhda is a long-life, high-grade asset with robust economics," Vitaly Nesis, the CEO of Polymetal and brother of company's main shareholder Alexander Nesis, told Reuters. The mine is set to start producing gold in 2021, with planned capacity of 180,000 ounces for first three years and another 155,00 ounces for the next fifteen years. In June 2018 Polymetal commissioned a major Kyzyl mine in Kazakhstan ahead of schedule. Ambitious growth plans of Polymetal, Polyus Gold, and other Russian precious metals miners could push the country to become the second- largest gold miner behind Australia by 2030, previous estimates by Aton Equity and the Institute of Geotechnology showed.
Polymetal’s second investor day in 2018, held on November 12, was slightly positive for the stock: the company confirmed Kyzyl’s upside potential and announced improved Nezhda NPV estimates. Still, when providing output estimates for 2019 onwards, management remained conservative, which might set the grounds for expectations of an outperformance in the medium term. VBTC unchanged 12-month Target Price of GBp 840 implies a 24% ETR: Buy reiterated. Positive POX debottlenecking results. The company confirmed the Kyzyl upside (see our Polymetal International – Kyzyl site visit, of 22 October, for more details) while also noting better than expected recoveries (+2-3pp) at debottlenecked POX (50% of Kyzyl gold). This suggests the mine is on track to exceed projected output figures and be below plan on costs. Nezhda feasibility incorporates underground mine. In its Nezhda feasibility study, Polymetal now incorporates the underground mine, which more than doubles the project’s LoM and adds USD 170mn to NPV (company’s estimate, Figure 3). The majority of the NPV improvement relates to the underground mine (after 19 years of open-pit), however, part of the improvement comes from capex optimisation and the open-pit’s higher LoM. New production guidance conservative. Polymetal lowered its 2019-23 output guidance 8% on average. That, according to management, reflects the planned divesture of non-core mines. The new guidance (ex mines for sale) is 5% more conservative on average for 2019-22 than our estimate (Figure 1). Furthermore, total guidance does not incorporate the potential Kyzyl output upside from higher grades and throughput from 2020 onwards. Special dividends in 2019, thanks to better capex guidance. The 2018 capex guidance was decreased USD 35mn, while the 2019 guidance was largely unchanged (Figure 2). This would improve our estimate of 2019F net debt/EBITDA to 1.4x, making the case for special dividends for 2019F (management notes that they are more likely if leverage is below 1.5x). 2019 cost guidance yet to be announced. Management expects the Kyzyl ramp-up and divestment of non-core high-cost assets (Kapan and Khakanja/Okhotsk) to result in a combined 8% decrease in AISC in 2019 (all else being equal). This
121 RUSSIA Country Report December 2018 www.intellinews.com