Polymetal International 2017 Interim results
Revenue in 1H 2017 increased by 15% to US$ 683 million compared to 1H 2016 ("year-on-year") driven by production growth and tighter management of the seasonal gap between production and sales at Dukat, Omolon and Albazino. Gold sales were 380 Koz, up 19% year-on-year, while silver sales were 12.4 Moz, down 5% year-on-year, in line with production volume dynamics. Average realised gold and silver prices remained largely unchanged from 1H 2016.
Group Total cash costs ("TCC") were US$ 656 per gold equivalent ounce ("GE oz"), up 28% year-on-year, driven predominantly by the appreciation of the Russian Rouble against the US Dollar (by 21%, from an average rate of 70.2 RUB/USD in 1H 2016 to 58.1 RUB/USD in 1H 2017) on the back of stabilising macroeconomic conditions in Russia and Kazakhstan. All-in sustaining cash costs ("AISC") amounted to US$ 906/GE oz, an increase of 20% year-on-year, driven mostly by the same factors. Both cost measures are expected to decline in 2H on the back of seasonally higher production and sales, particularily at Mayskoye and Okhotsk.
Adjusted EBITDA was US$ 257 million, down 12% year-on-year as a result of increased costs incurred due to a stronger Russian Rouble which was partially offset by an increase in production. The Adjusted EBITDA margin was 38% compared to 49% in 1H 2016.
Net earnings were US$ 120 million versus US$ 165 million in 1H 2016, reflecting the decrease in EBITDA and non-cash foreign exchange gains year-on-year. Underlying net earnings (adjusted for the after-tax amount of write-down of metal inventory to net realisable value, foreign exchange gains and change in fair value of contingent consideration liability) were US$ 117 million (1H 2016: US$ 125 million), down 6% year-on year.
Regular dividends for 2016 of US$ 0.18 per share (total of US$ 77 million) were paid in May 2017. An interim dividend of US$ 0.14 per share (1H 2016: US$ 0.09 per share) representing 50% of the Group's underlying net earnings for 1H 2017 is proposed by the Board in accordance with the revised dividend policy, while complying with hard ceiling of Net debt/Adjusted EBITDA ratio below 2.5x.
Net debt increased to US$ 1,582 million during the period (31 December 2016: US$ 1,330 million), representing 2.19x of last twelve months Adjusted EBITDA, driven by a seasonal working capital increase and intensive construction activities at Kyzyl as capital expenditure for the project expected to peak this year. As in prior years, free cash flow generation will be skewed towards the second half of the year driven by higher production and an expected seasonal working capital drawdown.
Polymetal remains on track to meet its 2017 production guidance of 1.40 Moz of gold equivalent. TCC and AISC are expected to trend downward in 2H to meet the original FY 2017 guidance range of US$ 600-650/GE oz and US$ 775-825/GE oz, respectively. This guidance remains dependent on exchange rate and oil price fluctuations.
"Our stable operational results in the first half of the year largely offset the negative impact of a stronger Russian Rouble on our financial performance while free cash flow declined, as expected, primarily due to the peak capex required to advance the Kyzyl project", said Vitaly Nesis, Group CEO, commenting on the results. "We expect stronger production, lower costs and materially higher cash flow generation in the second half of the year".
