Polymetal International Plc - 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 and low-cost asset base of assets. It has operations in Kazakhstan and Russia.

On 26 August 2020, the Company will announce the H1 FY20 results.

Q2 FY2020 Production Update (as on 23 July 2020)


(Source: Company Website)

The Group had reported strong production results for the second quarter of 2020 and the six months ended 30 June 2020. LTIFR (lost time injury frequency rate per 200,000 hours worked) for the first half of 2020 improved by 70% year-on-year (y-o-y) to 0.07, since merely four minor injuries were recorded. Led by a strong performance at Kyzyl, the gold equivalent production for Q2 FY20 surged by 2% y-o-y to 358 Koz. While the gold equivalent output for H1 FY20 rose by 4% y-o-y to 703 Koz. In Q2 FY20, the revenue increased by 30% y-o-y to US$641 million, driven by higher sales volumes and gold prices. Whilst H1 revenue amounted to US$1,135 million, an increase of 20% y-o-y. In this reporting period, the Company generated significant free cash flow. Net debt was US$1.69 billion as of 30 June 2020, while the Group paid final dividends of US$197 million for FY2019.

Share Price Performance


 1-Year Chart as on 23 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Polymetal International Plc’s shares were trading at GBX 1,772.50 on 23 July 2020 (before the market close at 12:35 PM GMT+1), up by 3.84% against the last day closing price. Stock 52 week High and Low were GBX 1,787.00 and GBX 965.05, respectively.

At the current trading level, 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level, representing overbought level.

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. POLY is cautious about the outlook for the key commodities in the short term. The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Conclusion

In the second quarter of 2020, the Company delivered a strong performance, with an increase in revenue and gold equivalent production. During the Covid-19 uncertainties, the Group has been taking a range of measures to allow projects and operations to proceed without interruptions or delays. The Group confirmed the full-year 2020 production guidance of 1.5 Moz of gold equivalent. 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. Moreover, the Company’s P/E and P/CF multiples are significantly higher as compared to the industry multiple, reflecting overstretched valuations.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current market price of GBX 1,772.50 (as on 23 July 2020, before the market close at 12:35 PM GMT+1), with support from few catalysts needs to be evaluated at a later stage.

Petropavlovsk Plc – Decent First Half Production in a Challenging Environment

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

H1 FY20 Trading Update (for the period from 1 January 2020 to 30 June 2020, as on 23 July 2020)


(Source: Company Website)

During the first half of 2020, the Company delivered a 42% increase in gold production to 320.6koz (H1 FY19: 225.0koz). The Group also boosted production on a quarterly basis. The 312.4koz that the Company sold fetched an average realised price of US$1,640 per ounce, up from US$1,286 per ounce fetched last year in the same period. Led by an increase in cash, the net debt (unaudited) reduced to approximately US$538 million (31 December 2019: US$561.3 million). In the first half of 2020, the Company had a positive US$0.9 million cash effect from FX hedges, while 10.5koz of zero-cost collars expired with zero cash settlement. The Group's LTIFR has improved by 13% to 1.23 in H1 FY20 (H1 FY19: 1.42).

Share Price Performance


 1-Year Chart as on 23 July 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Petropavlovsk Plc’s shares were trading at GBX 37.54 on 23 July 2020 (before the market close at 12:40 PM GMT+1), up by 19.94% against the last day closing price. Stock 52 week High and Low were GBX 38.95 and GBX 9.09, respectively.

At the current trading level, 14 days relative strength index of the stock was not favourable, and prices could fall further from the current trading level, representing overbought level.

Valuation Methodology


 
Key Risks

Fluctuations in the gold price and foreign exchange rate could affect the profitability and revenue of the Company. Moreover, the delay in the delivery of material and equipment can lead to a higher cost of production. Also, the business requires adequate resources to maintain future operations and replace depleted mines. The onset and scale of COVID-19 pandemic have caused unprecedented disruption to the supply chain.'

Conclusion

Total gold production for FY20 is expected to increase and reach a range between 620koz and 720koz. Gold production from the Group’s own ore stays on track to meet the full-year 2020 target of 430koz to 460koz. The Group requires various licences and permits in order to operate, any violation in these could affect the overall business of the Petropavlovsk.

In the long-term, the Group seems to be well-positioned to grow ahead of the end markets supported by a robust balance sheet and decent cash generation. But in the near-term, the Group will face several challenges, which requires continuous investment and would also disturb the supply chain. Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited, and the Company can face stiff resistance at the current level.

Based on the factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the current market price of GBX 37.54 (as on 23 July 2020, before the market close at 12:40 PM GMT+1), with support from few catalysts needs to be evaluated at a later stage. 
 
*Dividend Yield may vary as per the stock price movement.
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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