Polymetal International PLC (LON: POLY) – On track to deliver the first production at Nezhda facility by November 2021.

Polymetal International PLC (LON: POLY) is an FTSE 100 listed one of the most prominent gold and silver producers worldwide. On a global level, the Company is amongst the top 10 gold producers and top 5 silver producers. Moreover, POLY has operations in Russia and Kazakhstan. POLY has a total portfolio of nine gold & silver mines and an impressive pipeline of future growth prospects.

On 26 August 2021, POLY will release H1 FY21 results.

Recent trends of dividend payments

(Source: Company website)

POLY had paid a final dividend of 89 US cents per share on 28 May 2021, while the ex-dividend date was 06 May 2021. Moreover, the total dividend paid during FY20 stood at 129 US cents per share, an increase of around 57% when compared with 82 US cents per share of the total dividend paid during FY19.

Growth Prospects

• Significant progress of construction activities: The construction and development activities at Nezhda and POX-2 projects had progressed well and remained on schedule despite of tightness in the construction contractor market. Moreover, the start of commissioning at Nezhda remained a key milestone for POLY.
• Robust free cash flow: POLY had shown a strong free cash flow of around USD 610 million during FY20, driven by net cash operating inflow of around USD 1.19 billion.
• Sustainable development goals: POLY had set out sustainable goals of reducing freshwater use for processing by about 11% by 2023. Moreover, it aims to improve energy efficiency by making significant usage of renewable sources of energy.
• Long-term growth pipeline: The investment decision for the Prognoz project would be expected to be taken by Q4 FY21. Moreover, the initial ore reserves estimate for the Viksha project would be completed by H2 FY21.

Key Risks

• Failure to discover substantial reserves: The failure in discovering substantial reserves could adversely affect the POLY’s future performance as exploration and development are capital-intensive activities.
• Environmental risk: The Company may face reputational damage arising from environmental hazards associated with the activities. More recently, the Company had reported the death of a drilling contractor at the Saum open pit mine on 18 July 2021.
• Financial risk: Several financial risks associated with fluctuation in the foreign exchange & interest rates, increase in US Dollar index, and credit defaults.
• Volatile commodity price: The high volatility in gold and silver price could have an adverse impact on the top-line revenue of the Company.

Gold Industry Dynamics

• Global gold ETFs had shown a marginal inflow of around 2.9 tonnes during June 2021 after showing a healthy inflow during May 2021.
• The inflow into North American and Asian Funds got offset by outflows from European funds.
• The global Asset under Management stood at 3,624 tonnes, around 7% lower than the October 2020 record of 3,909 tonnes.
• The U.S. jobs report, including non-farm payrolls data, will release on 05 August 2021, which will give more insights regarding the timeline for the US Federal Reserve to begin asset tapering and a short-term outlook of the US Dollar.
• Moreover, the gold price had demonstrated a marginal increase after Fed Chairman Jerome Powell affirmed that there wouldn’t be any adjustment in the bond-buying programme.

Overall, the decline in bond yield and US dollar had prompted the gold price to show a slight increase during the last week. However, it faltered after reaching a resistance of around USD 1,832.00.

(Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,805.80) is sustaining between the lower Bollinger band and the middle Bollinger band, indicating an upside direction for the commodity. The momentum indicator RSI (14-period) is trading at ~48.47 levels.

Now, we will analyze the Key Fundamental Statistics & Shareholding Pattern of Polymetal International PLC.

Nesis (Alexander Natanovich) is the most significant shareholder as it holds nearly 299.86 million shares as of 30 June 2021.  

H1 FY21 Operational Update (for the six months ended 30 June 2021, as of 27 July 2021)

(Source: Company result)

• The planned grade declines at Kyzyl and Albazino had resulted in a marginal decline of around 1% in the total gold equivalent production to around 714 Koz (“kilo ounce”) during H1 FY21.
• The revenue had shown a robust growth of around 12% to USD 1.27 billion during H1 FY21
• With regards to the balance sheet, POLY had shown around 35% increase in the net debt, and it stood at USD 1.83 billion as of 30 June 2021. Moreover, the increase was due to the record final dividend distributed with respect to FY20.
• The Company had not reported any fatalities for H1 FY21. 

Share Price Performance Analysis

(Source: REFINITIV; Analysis done by Kalkine Group)

On 02 August 2021, at 09:22 AM GMT, POLY’s shares were trading at GBX 1,557.00, down by around 0.35% from the previous day closing price. Stock 52-week High and Low were GBX 2,085.00 and GBX 1,382.00, respectively.

From a technical perspective, the MACD line remained above the signal line, indicating a bullish stance in the stock price. Moreover, the stock is hovering between the lower Bollinger band and middle Bollinger band, indicating an upside potential in the stock price.

Over the last two years, POLY’s stock price had delivered a positive return of around 58.53%, while the FTSE 100 index (benchmark index) had produced a return of about negative 4.09% and FTSE All-Share Precious Metals & Mining had delivered a return of about 21.86%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

POLY had produced a steady Q2 FY21 and H1 FY21 production results, with all production mines developing budget targets. The addition of Nezhda and POX-2 production facilities will increase the capacity in the coming years. Moreover, POLY had forecasted FY21 gold equivalent production of around 1.50 Moz (“million ounces”). Furthermore, the Company had projected total annual gold equivalent production to show a modest rise of about 12% in the next five years and reach 1.75 Moz by 2025. On the cost side, POLY will prioritize timely project execution and incur additional costs required to complete the projects within stipulated timelines. The Company had projected AISC (“All-In Sustaining Cost”) to be ranging from USD 925 to USD 975 per gold equivalent ounce during FY21. Overall, the Company would deliver long term growth for shareholders with a robust dividend yield.

(Source: Company presentation)

Considering the recent construction & development projects, robust profitability, strong revenue growth, well-positioned balance sheet, strong liquidity profile, high dividend yield, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Polymetal International at the current price of GBX 1,557.00 (as on 02 August 2021 at 09:22 AM GMT), with lower-double digit upside potential based on 11.47x Price/NTM earnings (approx.) on FY21E earnings per share (approx.). 

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*The dividend yield is subject to change as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.