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to 2023 are estimated at $431mn and will be financed from cash flow from operating activities. The capacity of the line will be 250,000–300,000 tonnes of concentrate and 48,000 tons of sulfur per year. The plant will be the largest in Russia. The internal rate of return in the baseline scenario is estimated at 14%, and the net present value at $112mn. The economic benefit of the project is to process the concentrate of refractory ores on its own capacities, rather than farm the work out to other facilities overseas. The implementation of the investment project will allow Polymetal to increase production by 30,000– 35,000 ounces of gold per year, while cash costs for production will decrease by an average of $100–150 per ounce, the company expects. Refractory ores account for more than half of Polymetal's reserves. Creating its own processing facilities is of strategic importance for the company against the backdrop of tightening environmental requirements and capacity reduction in China, which is the main market for refractory concentrates, Polymetal CEO Vitaly Nesis said at a presentation of the project in London. In the future, Polymetal plans to process not only its own ores, but also third-party ores at the new facilities. The project's feasibility study has already been developed jointly with the Canadian company Hatch Inc. Construction should begin in the second quarter of 2019. The company’s planned output is scheduled for the fourth quarter of 2023. Polymetal expects to process 13.6mn ounces of gold at the plant in 23 years of the plant’s lifetime.
● Steel
Leading Russian steel mill Novolipetsk Metallurgical Kombinat (NLMK) reported expectedly weak 4Q18 IFRS numbers, with a 17% q/q decline in EBITDA mostly due to negative steel price dynamics as well as a deterioration in the product mix, Dmitry Glushakov of VTB Capital (VTBC) said in a note on February 11. “Free cash flow (FCF) was also lower q/q at $502mn, though that beat our forecasts by $100mn solely on the working capital release. Management is to recommend a 100% of FCF payout as dividends, which implies a 3.4% yield, on our numbers. The company schedules major upstream steelmaking maintenance in 2019, which is set to lower steel output by 1mnt y/y and we estimate it to have 3% negative effect on EBITDA. Our unchanged 12-month Target Price of $23.5/GDR implies a 6% ETR; Hold reiterated,” Glushakov said. EBITDA was 17% lower q/q. Despite sales volumes of steel products being higher q/q, revenues declined 4% q/q to $3.0bn (in line with consensus and 2% below VTBC) on the back of lower steel prices as well as the worse product mix. EBITDA, as a result, lost 17% q/q and in 1Q19 it might be even weaker than 4Q18, given the further deterioration in prices and seasonal decline in volumes. The lower earnings will reduce the dividend payments. Dividends are set to be 100% of free cash flow (FCF), which implies a modest (by Russian standards) 3.4% dividend yield. Management says that it will recommend a 100% of FCF dividends payout, of $502mn for 4Q18.
Iconic Russian steel mill Magnitogorsk Iron and Steel Works (MMK) reported weak 4Q18 results, due to lower steel prices in Russia, VTB Capital (VTBC) said in a note on February 8. “EBITDA contracted 20% q/q on deteriorating steel margins. FCF slightly disappointed, arriving at $239mn vs. the $300mn we had forecast for the quarter, due to a lower working capital release than we had expected. The company's board of directors has not yet recommended dividends, though we stick to our estimate of a 100% FCF payout. The dividend payment would thus be $239mn for the quarter (3.1% yield). Therefore, we view the results as neutral. While we still estimate MMK to have more attractive valuations on normalised price levels than its local
126 RUSSIA Country Report March 2019 www.intellinews.com