Management
Bobby Godsell is the Chairman of the Board. The current Chief Executive Officer is Vitaly Nesis, he was named on 29 September 2011. Vitaly Savchenko was appointed as the Chief Operating Officer in 2009.

Segments
The group has five reportable segments: Magadan, Ural, Kazakhstan, Khabarovsk and Armenia. The segments are differentiated based on the group's geographical structure, and each segment is engaged in gold, silver or copper mining and related activities. The segments comprises of subsidiaries which includes: Magadan (Omolon Gold Mining Company LLC, Magadan Silver JSC, Mayskoye Gold Mining Company LLC); Ural (Gold of Northern Urals CJSC); Khabarovsk (Albazino Resources Ltd, Amur Hydrometallurgical Plant LLC, Okhotskaya Mining and Exploration Company LLC, Svetloye LLC); Kazakhstan (Varvarinskoye JSC, Komarovskoye Mining Company LLC, Bakyrchik Mining Venture LLC, Inter Gold Capital LLC); and Armenia (Kapan MPC CJSC, Lichkvaz CJSC). 
 
Key Statistics


Top Shareholders
 
(Source: Thomson Reuters)
 
Recent Developments
On 30 January 2019, the group announced that it had completed the previously announced sale of Kapan. The asset has been sold to Chaarat Gold Holdings Limited for $55 million; the sale will assist the company to concentrate and upgrade its asset portfolio. On 17 December 2018, the company announced that it had sold its Khakanja asset. The sale has been made to a group of unrelated private Russian buyers for $30 million in cash and assumed debt. It helps in advancing the group’s strategy of selling smaller short-lived assets.
 
Key Financial Metrics (FY 2018, in $m)
 

(Source: Company Filings)

Key Financial Highlights (FY 2018, in $m)
The group in FY 2018 reported an increase of 4% in revenue to $1,882 million. The increase was mainly because of a 9% rise in gold equivalent (GE) production. Although silver sales were down 3% to 25.7 Moz, gold sales increased by 10% over the year to 1,198 Koz. Average realised prices declined for both the metals. The total cash costs for the year decreased by 1% to $ 649/GE oz and was less than the company's guidance of $650-700/GE oz. Adjusted EBITDA rose by 5% to $780 million, while adjusted EBITDA margin increased by 40bps to 41.4%. The increase was due to a rise in production and stable cost. Net earnings remained flat at $355 million, against $354 million reported in FY 2017, while EPS declined by 5% to $0.78/share. Due to EBITDA growth and lower depreciation and income tax expenses, the underlying net earnings increased by 19% to US$ 447 million, and underlying EPS rose by 14% to $1/share. Capital expenditure declined by 10% over the year to $344 million, while capital spending including loans to Nezhda and Prognoz was $395 million, below the original guidance of US$ 400 million. The group reported net debt of $1,520 million, increasing from $1,420 million reported in FY 2017. This led to a rise in net debt/adjusted EBITDA from 1.91x in FY 2017 to 1.95x in FY 2018. Despite investments, the company generated free cash flow worth US$ 176 million in FY 2018, against $143 million in FY 2017. In accordance with the Company's revised dividend policy of paying 50% of the Group's underlying net earnings for the period, the company announced final dividend of US$ 0.31 per share (approx. $146 million), bringing the total dividend declared for FY 2018 to US$ 223 million, or US$ 0.48 per share, against $0.44 per share paid in FY 2017. The group complied with the ceiling of Net debt/Adjusted EBITDA ratio of below 2.5.

Financial Ratios

 (Source: Thomson Reuters)

Ratios Commentary
The group's profitability margins increased in the financial year 2018 over the previous year, reflecting EBITDA growth and decline in the expenses. Moreover, the margins were significantly more than the industry median, signifying optimal usage of resources. The quick ratio increased considerably while the current ratio declined in 2018 as compared to the last year data, signifying although current assets as a proportion of current liabilities declined, the percentage of cash increased significantly. Both the ratios were more than the industry median. The company was more leveraged than its competitors. The debt/equity was substantially higher, indicating a higher proportion of debt as compared to equity. The asset turnover ratio gradually decreased over the periods and was lower the industry median, suggesting the company can use its assets more optimally.
 
Valuation Methodology

Method 1: EV/EBITDA Multiple Approach (NTM)


Method 2: Price/Book Value Multiple Approach (NTM)  
 

To compare Polymetal with its peers, Price/Book multiple has been used. The peers are AK Alrosa PAO(NTM P/B was 0.03), Magnitogorskiy Metallurgicheskiy Kombinat PAO (NTM P/B was 1.44),Novolipetsk Steel PAO(NTM P/B was 2.49) and GMK Noril'skiy nikel' PAO(NTM P/B was 7.39). The mean of Price/Book (NTM) of the company’s peers was 2.84x.
 
*All forecasted figures and Peer selection have been taken from the Thomson Reuters.
 
Share Price Commentary

Daily Chart as at Mar-13-19, before the market close (Source: Thomson Reuters)
 
On 13th March 2019, at the time of writing (before market close, GMT 12:15 pm), POLYshares were trading at GBX 871.6, down by 0.2 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 900.57/GBX 577.80. At the time of writing, the share was trading 3.15 per cent lower than its 52w High and 50.84 per cent higher than its 52w low. Stock’s average traded volume for 5 days was 1,250,141.20; 30 days - 1,153,051.70 and 90 days - 1,416,256.13. The average traded volume for 5 days was up by 8.42 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 11.4x as compared to the industry median of 19.4x. The company’s stock beta was 0.29, reflecting less volatility as compared to the benchmark index. The outstanding market capitalisation was around £4.10 billion and a dividend yield of 4.24 per cent.

Risks Assessment and Growth Prospects
The company expects to report strong operating performance in its first year of full production from Kyzyl with the production guidance remaining the same at 1.55 Moz and 1.6 Moz of GE for 2019 and 2020, respectively.  The costs are also expected to decline due to the disposal of high-cost Kapan and Okhotsk and increasing share of low-cost production from Kyzyl. However, the company notes that the revenue and cost structure is contingent on Gold and silver price volatility, leading to an impact on cash flows as well. Operating in Russia, Kazakhstan and Armenia involve some risk of political instability, not least frequent changes in tax legislation due to lack of established practices in tax law. There is a risk that further sanctions could impact the Group's ability to operate in Russia, deteriorating the macroeconomic situation which could prompt the government to impose currency controls and limitations on capital flows. As the company has a significant US Dollar-denominated floating rate borrowing, volatility in interest rate can adversely affect the company's financials. Fluctuations in currency can also lead to increased cost of imported capital goods and consumables.
 
Conclusion
The company will be starting full production from Kyzyl which will help the company to reduce costs and report better results. Also, the global political and economic uncertainties mean that the prices of precious metals are expected to increase, leading to a reliable revenue forecast. Based on a strong prospect supported by valuation done using the above two methods, we have given a BUY recommendation at the closing price of GBX 873.8 (as on 12th March 2019) with a probable double-digit upside potential based on 2.84x NTM Price/Book Value on FY19E book value per share and 8x NTM EV/EBITDA Flow on FY19E EBITDA.
 
*The buy recommendation is valid for the current price as covered in the report (as on Mar-13-19).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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