Page 154 - RusRPTOct20

3Q20F sales forecast and, therefore, 13% to 2020F
State Duma approved larger diamond purchases by Gokhran from​ ​Alrosa in 2020​. Prime reported. The State Duma, the Russian parliament’s lower house, approved a bill allowing larger diamond purchases by the state precious metals and gems repository Gokhran in 2020 in the second out of three compulsory readings. The third reading is planned for today. To become law, the bill must also be approved by the Federation Council, the upper house and signed by the president. Meanwhile, the improvement on the diamond market may affect the amount of Alrosa diamonds purchased by Gokhran, according to Interfax. The planned deal limit is up to $1bn and may be reduced, given the improved market conditions, but a complete rejection of the deal is unlikely, according to Alexey Moiseev, the Deputy Finance Minister of Russia. Yakutia, the second largest shareholder of Alrosa, offered the state to buy $0.5-1bn worth of rough diamonds in Gokhran at the end of 2019. This amount is equivalent to 15-30% of ALROSA's annual revenue in 2019. Alrosa’s diamond sales increased over 6x m/m and by 19% y/y in August to $216.7mn.
Polyus Gold​ has reported neutral 2Q20 earnings: FCFE and EBITDA, including COVID-19-related costs, matched our expectations. ​The company continues to run materially below its cost and capex guidance and might beat it in 2020, which we and the market expect. Taking into account our positive view on the gold price, we reiterate our Buy on Polyus with an unchanged 12-month Target Price of $ 180/share. EBITDA with COVID-19 costs in line, dividend is higher. The company’s headline EBITDA of $860mn was 3-4% above consensus due to the exclusion of $ 36mn of COVID-19 related costs. Adjusted for that as well as social costs, EBITDA of $805mn was slightly below forecasts. The company’s methodology of exclusion of both COVID-19 and social costs from EBITDA resulted in higher dividends than we had expected: Polyus announced a 30% pay-out ratio of $860mn adj. EBITDA, meaning DPS of $1.6/DR (1.4% dividend yield). TCC in line, higher AISC due to stripping. TCC of $340/oz (excl. COVID-19) was below our forecast due to the exclusion of COVID-19 costs, the portion of, which relating to TCC was $28/oz. TCC including these costs was in line with our estimates. We note lower TCC of alluvials and Kuranakh, which offset higher costs at Natalka. AISC incl. COVID-19 costs of $602/oz were 4% above our forecast due to higher capitalised stripping of $37mn, which was little changed q/q despite lower waste mined. Nevertheless, Polyus was comfortably below the $400-450/oz guidance (which assumed RUB$60, corresponding to $350-400/oz under RUB$of 71). FCFE matches expectations, core capex run-rate remains below guidance. FCFE of $438mn matched our estimates, despite higher stripping, due to core capex of just $127mn, which was lower than we had forecast (little changed q/q). Even accounting for a weaker RUB$(our 2020F is 71 vs. the company’s assumption of 60), the 1H20 capex run-rate is below the lower bound of the $ 700-750mn guidance.
154 ​RUSSIA Country Report​ October 2020 ​ ​www.intellinews.com