Polymetal International Plc – Completed Sale of North Kaluga and Decent Performance in the Challenging Period

FTSE 100 listed Polymetal International Plc (LON: POLY) is a Cyprus-based leading gold and silver producer with a high-quality, low-cost asset base, and operations in Kazakhstan and Russia.

On 27^th July 2020, the Company will announce the Q2 Production Results.

Recent News
On 25^th June 2020, the Company completed the sale of North Kaluga mine in Russia to North Kaluga Mining Ltd for USD 35.7 million. The deal was first announced in May 2020, for consideration in cash of USD 10.7 million plus royalties with a fair value USD 19.1 million and repayment of USD 5.9 million in debt owed to the Company.

On 15^th June 2020, the Group issued the report on payments to the government for the year ended 31 December 2019.

Q1 FY20 Production Report
On 20th April 2020, Polymetal International released an update on the production for the Q1 FY2020, with a decent start to the year for the Group and delivered steady performance amidst unprecedented global disruption and uncertainty. The Group has an improved LTIFR (Lost Time Injury Frequency Rate) of 71 per cent for the period and recorded two minor injuries. The Company’s production of gold equivalent surged by 5 per cent to 391 Koz in Q1 FY2020, driven by improved performance from Varvara, Svetloye and Kyzyl. The Group witnessed a decline in the planned grade from Voro and Omolon. Driven by high gold prices, the revenue surged by 9 per cent (year-on-year) to USD 494 million in Q1 FY2020, while the sales volumes declined by 7 per cent.

Share Price Performance

1-Year Chart as at June-26-2020, after the market close (Source: Refinitiv, Thomson Reuters)

Polymetal International Plc’s shares closed at GBX 1,549.50 on 26th June 2020, which was up by 0.62% against the last day closing price. Stock 52 week High and Low were GBX 1,758.00 and GBX 950.66, respectively.

From the technical standpoint, shares were trading well below short-term support level of 50-day simple moving average prices, which reflects a downtrend trend in the stock.

Valuation Methodology
  
Key Risks
The Company operates in multiple geographies due to which the Group profits can be impacted negatively due to the foreign exchange rate fluctuations. Moreover, the Coronavirus outbreak could affect the performance of the Company, although the Company continued the momentum of operational performance, while production remained resilient during the lockdown scenario.

Conclusion
In 2020, the production guidance for TCC is anticipated between US$ 650/GE oz and 700/GE oz, while AISC should be in the range of US$ 850-900/GE oz. The Group reiterates the existing production guidance of 1.6 Moz of GE for the year 2020. The risk to operations is also due to the complex relation Russia currently has with the United States and European Union. For 2020, the Group maintains a positive outlook, both in terms of free cash flow and earnings. Furthermore, the Company is trading near a 52-week high, raising doubts at the upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 1,549.50 (as on 26^th June 2020), with support from few catalysts needs to be evaluated at a later stage.

Petropavlovsk Plc – Decent Results in the Challenging Environment

FTSE 250 listed Petropavlovsk Plc (LON: POG) is a London-registered Russian gold mining Company with operations in the Far East of Russia.

On 30^th June 2020, the Group will hold the Annual General Meeting.

Recent News
On 25^th June 2020, the Group has commenced trading of the secondary shares on the Moscow Exchange (MoEx).

On 24^th June 2020, the Company announced that S&P Global Ratings (S&PGR) has lifted the rating from B- to B and carry a Stable outlook.

Q1 FY2020 Production Update
On 27^th May 2020, the Group provided the Q1 FY2020 production or sales update, with total Q1 2020 gold production increased by 73 per cent to 186.2 koz (Q1 2019: 107.7 koz), of which 115.4 koz came from processing refractory concentrates at the POX Hub. The sales for Q1 FY20 surged by 26 per cent to 663 kt as compared with the corresponding period of the last year (Q1 FY19: 527 kt). K&S operated at approximately 86 per cent of designed capacity, producing a record 671 kt of iron ore concentrate (Q1 FY19: 523 kt).

Financial Highlights (FY2019) (USD Million)

(Source: Company Website)

On 27^th May 2020, the Group provided the audited annual results for the year ended 31 December 2019, with total 2019 gold production increase of 22 per cent to 517.3 koz. Including non-precious operations, the Group revenue for FY2019 surged by 48 per cent to USD 741.6 million as compared with the previous year (2018: USD 499.8 million), reflecting higher average gold sales price and higher production volumes. In FY20, the profit for the year marginally reduced by 0.8 per cent to USD 25.7 million (2018: USD 25.9 million). Cash generated from operations declined by 43 per cent to USD 189.3 million (2018: USD 329.8 million), mainly reflecting changes in working capital. Net debt decreased to USD 561.3 million in FY19 (FY18: USD 568 million). Moreover, the capital expenditure tumbled 23 per cent to USD 103.8 million (2018: USD 134.4 million) with expenditure associated with the construction of the POX Hub largely completed.

Share Price Performance

1-Year Chart as at June-26-2020, after the market close (Source: Refinitiv, Thomson Reuters)

Polymetal International Plc’s shares closed at GBX 30.90 on 26th June 2020, which was down by 3.59% against the last day closing price. Stock 52 week High and Low were GBX 34.55 and GBX 9.02, respectively. The RSI (14) is moving downwards from the top.

Valuation Methodology
 
Key Risks
Operational risks arise due to weather conditions and failure in the delivery of equipment can affect the operations of the Company. Financial risks such as lack of funding and liquidity could affect the operations of the Group. Fluctuations in the gold price and foreign exchange rate could affect the profitability and revenue of the Company.

Conclusion
The Company has witnessed a decent financial performance in the fiscal year 2019 and decent operational highlights in the first quarter of 2020. In 2019, the Group delivered a decent set of results, with higher gold sales, increased EBITDA and profits. Total gold production for 2020 is expected to increase and reach a range between 620 koz and 720 koz. The Group requires various licences and permits in order to operate, any violation in these could affect the overall business of the Petropavlovsk. The Group’s production has been reduced due to an outbreak of Covid-19. Furthermore, the Company is trading near a 52-week high, raising doubts at the upside potential at current prices.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 30.90 (as on 26^th June 2020), with support from few catalysts needs to be evaluated at a later stage.
 
*All forecasted figures and information have been taken from Thomson Reuters.

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