Monday, 30 March 2015

Polymetal - a Russia focused gold play worth keeping an eye on

The last time I wrote about the London-listed but Russian-focused precious metals miner Polymetal was about six months ago (link here).  I concluded back then that:

'...there is lots of potential, some clear financing and political risks and a share price near the 500p support level.  I am still a buyer at / around 500p and a holder at prevailing'

In essence that would still be my view now having looks through today's full year results presentation from the company.


Fundamentally the company is in reasonable shape achieving sufficient volume increases and cost cuts to push ebitda up year-on-year for the FY14.  Of course having rouble costs and selling in US dollars always help…

 

…the outlook is ok (slight production fall yoy BUT control of costs as well as FCF/dividends)…


…however the key evolution (as initially discussed at the link above) is the bump in capex over the next few years as the company develops the Kyzyl mine in Kazakhstan.  This is important as initially it will take the net debt: ebitda rating above x2 which inevitably heightens risks despite some of the good metrics above (and what appears to be a good grade profile/dynamics at the Kyzyl mine). 


 But Polymetal is not a share to ignore, just one to be aware of the potential rewards as well as risks.  The reason why it is still one to consider despite Russia general issues /debt build up etc. is that return on equity is good (slightly deceptive at 21% I would argue but nevertheless the important metric is the differential in tone versus a bunch of the larger cap stocks which have write-off induced negative RoEs)…
 


…and even more importantly the grade is strong. 


All things considered the nil debt, good continued growth prospects, lower political risk Randgold (last written up here) would still be my preferred play (note its solid RoE, attractive grade profile as per the above – by the way, the Randgold annual report today showed the reserve grade was maintained at 3.6 g/t) although at a prevailing share price of 4500p (currently 4800p) is the level to get more aggressive at (as I did a couple of weeks ago - link here).  Polymetal is a good London listed backup…just wait for nearer 500p to get involved with new money in my view.  I remain a holder of stock purchased at/around that level.    

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