Polymetal International Plc

Polymetal International Plc (LON: POLY) is a leading gold and silver producer with a high-quality, low-cost asset base, and operations in Kazakhstan and Russia. Along with a pipeline of future growth projects, the company has a portfolio of nine producing gold and silver mines and is the 2nd largest in Russia for gold production. The group has five reportable segments: Magadan, Ural, Kazakhstan, Khabarovsk and Armenia.

Recent News
On 12th December 2019, Polymetal International announced the selection of Italia Boninelli as Non-Executive Independent Director effective immediately and Victor Flores as Non-Executive Independent Director effective from 30th January 2020.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, $, million)

(Source: Interim Report, Company Website)

In the first half of the financial year 2019, the group’s revenue surged by 20 per cent to US$ 946 million against US$ 789 million recorded in the year-ago period, mainly on account of gold equivalent (GE) production which reported a growth of 22 per cent. Adjusted EBITDA stood at US$ 403 million and expanded by 34 per cent on a YoY basis, led by higher production volumes. Adjusted EBITDA margin surged by 500 bps to 43 per cent against 38 per cent recorded in the year-ago period, which shows a successful launch and ramp-up of Kyzyl delivering at full capacity during the period. Underlying EPS during the period under review reported an increase of 14 per cent and stood at US$0.40c/share and the board of directors of the group has approved an interim dividend of US$0.20/share for the H1FY19, up by 18 per cent on a YoY basis.

Share Price Performance

Daily Chart as of 18^th December 2019, before the market close (Source: Thomson Reuters)

On 18th December 2019, Polymetal International Plc shares were trading at GBX 1,179.00 at the time of writing before the market close (at 9:06 AM GMT), up by 0.43 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,283.00/GBX 763.80. The shares of the company have delivered a positive return of 31.05 per cent in the last six months. The company’s stock has given investors 0.55 per cent of a negative return in the last month.

Valuation Methodology

*Peers: Fresnillo Plc, Gold Fields Ltd, Goldplat Plc, Highland Gold Mining Ltd and Trans-Siberian Gold Plc.

Conclusion
The interim results of the group would be adversely affected by the inability of the firm to meet its production targets. This could be further exacerbated by the failure to discover new reserves of sufficient magnitude. Operating in Russia and Kazakhstan involves some risk of political instability, including the risk that further sanctions on Russia could impact the ability to operate in the country. The risk to operations is also due to the complex relation Russia currently has with the United States and European Union.

In the current period, the revenues and cash flow of the country are significantly impacted by price volatility in gold and silver, which is dependent on market forces. Due to the strengthening of the US Dollar, the company had to face a negative impact on its earnings.

For the second half of the year 2019, the company maintains a positive outlook, both in terms of free cash flow and earnings. The group will be on track to meet its financial year 2019 production guidance of 1.55 Moz of gold equivalent at TCC (total cash costs) in the range of AISC of US$ 800-850/GE oz and US$ 600-650/GE oz. In the second half of the year 2019, free cash flow generation will be significantly robust due to the higher production and the traditional seasonal working capital drawdown.

Based on the above rationale, we recommend investors to keep a “Watch” on the stock at the current price of GBX 1,184.50 (as on 18^th December 2019, before the market close at 8:05 AM GMT), while we look for any upcoming catalysts.

Kaz Minerals Plc

KAZ Minerals Plc (LON: KAZ) is the UK’s 6th largest industrial metal and mining company by market capitalisation and also a constituent of the UK's mid-cap FTSE 250 index. Its operational interest is in the mining and processing of copper. The company is focussed on developing new copper mining projects in Russia and Kazakhstan.

Recent News
On 15th November 2019, the group reported that it had signed a new term loan facility to up to $100m with Caterpillar Financial Services (UK).

Financial Highlights: H1 Financial Year 2019 (30th June 2019, $, million)

(Source: Interim Report, Company Website)

For the first half of the financial year 2019, the company’s revenue decreased by $46 million to $1,052 million versus $1,098 million in H1 FY2018. The decrease in revenue was driven by a higher copper volume from Aktogay and gold volumes from Bozshakol which were offset by the effect of lower copper, gold, silver and zinc prices and lower zinc volumes from the East Region operations. The group’s recorded EBITDA was reduced by 10 per cent to $620 million in H1 FY2019 against $690 million in the H1 FY2018 period. The operating profit stood at $410 million in the first half of the financial year 2019 versus an operating profit of $464 million in the first half of the financial year 2018. The diluted ordinary EPS was recorded at $0.47 in H1 FY2019 versus $0.62 in H1 FY2018. The reported Free Cash Flow decreased to $182 million in H1 FY2019 from $308 million in H1 FY2018.

Share Price Performance

Daily Chart as of 18^th December 2019, before the market close (Source: Thomson Reuters)

On 18th December 2019, Kaz Minerals Plc shares were trading at GBX 545.00 at the time of writing before the market close (at 9:10 AM GMT), down by 0.51 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 745.45/GBX 375.30. The shares of the company have delivered a positive return of 21.54 per cent in the last quarter. The company’s stock has given investors 13.27 per cent of a negative return in the last nine months.

Conclusion
The new credit facility will broaden the company’s debt portfolio and boost the liquidity, will help the company to develop a Kazakhstan based Aktogay expansion project, which is expected to start production in the year 2021.

In the current quarter, the company is well-positioned, including low-cost open-pit mines, 59 koz of gold, delivering 83 kt of copper. Following 6 per cent of output growth during the first nine months of 2019, the company is also well-positioned to deliver 2019 full-year copper production results in line with guidance of approximately 300 kt, while gold production expects to be in the range of 170-185 koz.

Therefore, based on the above rationale, we have given a “Hold” recommendation at the current price of GBX 542.10 (as on 18^th December 2019, before the market close at 8:35 AM GMT).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.Currency exchange rate taken for 1 USD = 0.7636 GBP.

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