Earnings Report /
Russia

Polymetal International: 4Q20 operating results — Neutral

  • Polymetal issued its 4Q20 operating results, which were broadly in line with market expectations

  • The company reiterated its 1.5Moz of GE production guidance, followed by a 6.7% increase in 2022 to 1.6Moz in 2022

  • We view the results as neutral for the stock, whereas the stock price performance should remain intact

Boris Krasnozhenov
Boris Krasnozhenov

Head of Research (Managing Director)

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Yulia Tolstykh
Yulia Tolstykh

Analyst, Metals & Mining

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Alfa
29 January 2021
Published byAlfa

Polymetal (POLY.LN, E/W, GBP 19.1/share) issued its 4Q20 operating results which were broadly in line with market expectations, which we view neutral for the stock. The company produced 1,559 Koz gold equivalent, which is 4% above management guidance of 1.5MKoz. Sales revenue grew 28% y/y to $2.9 bn while 4Q20 revenue was up 31% y/y to $0.8 bn on the back of a higher gold price and sales volumes, coupled with a closing lag in sales. This implies a 4.5% beat to our estimates, driven primarily by higher than expected production volumes and a slight inventory release. Nevertheless, the company expects TCC to stand below the initial guidance of $650-700/GE oz, which implies upside risk to our 2020 EBITDA estimates.

On the cash side, the company managed to reduce leverage, printing year-end net debt at $1.35 bn, which implies healthy Net Debt/EBITDA ratio of 1x (down from 1.3x in 1H20). The preliminary 2020 capex came in 10% ahead of our estimates at $590 mn, partially affected by the Covid-19-related expenditures, project delays and substantial increase in capitalized stripping.

As for the 2021 guidance, the company reiterated its 1.5Moz of GE production guidance, followed by a 6.7% increase in 2022 to 1.6Moz in 2022. The management has also flagged a potential TCC increase dwelling in a $700-750/oz of GE range, while revised capex guidance sets total expenditures at $560 mn, up 15.5% from initial $585 mn. Remarkably, the management set 2021 AISC guidance at average US$ 925-975/GE oz. The aforementioned upgrade is largely driven by currency appreciation, higher oil and steel prices and wage inflation, exacerbated by the Covid-related restrictions which remain in place. The management estimates incurred loss at approx. $5 mn on monthly basis through 2021, largely feeding through the operating cost, which translates into $35/oz of GE in AISC split.

All in all, we view the results as neutral for the stock, whereas the stock price performance should remain intact driven primarily by the expectations of the gold and silver price dynamics.

We expect gold prices to remain within a $1,800-2,100/oz range in 2021 unless Fed monetary policy becomes even more accommodative, and the Biden team adopts more stimulus. The gold price may touch the higher range of our corridor on a 6-12-month horizon. However, a $1,900/oz average trading level looks more realistic to us, at least for 1H21e. Our moderately positive view on the gold sector reflects concerns on the macro side balanced by solid fundamentals and elevated risks related to pandemic developments. The expectations of more positive real yields, a hawkish Fed and stronger dollar may overcome market concerns over a rising global debt load and an expanding Fed balance sheet, in our view. It may put pressure on the gold price from a macro perspective on a 3-6 month horizon.