"Polymetal" (MOEX: POLY) — one of the leaders in the extraction of precious metals with assets in Russia and Kazakhstan, one of the ten largest gold mining companies in the world.
At the end of January, Polymetal published operating results for the fourth quarter of 2021, which investors did not like very much. The company's shares were strongly corrected that day - by more than 5%.
Polymetal's production in 2021 grew by 2% compared to 2020, up to 1.677 million gold equivalent ounces, and on 5% exceeded the company's original production target of 1.6 million ounces.
The gold miner's revenue in 2021 remained unchanged compared to the previous year and amounted to $2.9 billion. General level of cash costs (TCC) for the full year 2021 will correspond to the forecast of 700-750 $ per ounce of gold equivalent, and total cash costs (AISC) exceed by 5% initial target range 925-975 $ per ounce of gold equivalent. Net debt of Polymetal at the end of 2021 decreased to $1.65 billion.
Operational results
The main activity of Polymetal is the production and sale of gold, and a small amount of silver. The company mines gold and silver at nine active deposits: Kyzyl, Ducate, Albazine, Omolone, Varvara, Maiskoe, Light, Vorontsovsky, Nezhda.
In the fourth quarter of 2021, the company's total gold and silver production increased by 20 And 48% due to that, that the strongest results were shown by the Kyzyl field, Ducat, Varvara and Nezhda. The latter has already reached its full design capacity.. Kyzyl in the last quarter showed convincing results - the gap between production and sales narrowed, and Dukat and Varvarinskoye performed well due to increased production and processing.
The remaining four assets did not show such impressive results.. Albazino and Omolon are close to last year's figures, but the data of the Mayskoye and Svetloye fields fell by 10% against the backdrop of a decrease in gold grades in ores due to geotechnical difficulties.
In November 2021, Polymetal management approved a $471 million investment in a new field — Veduga. The average annual production of the deposit during the next 20 years will be 200 thousand ounces of gold. The first work on the site will begin in the third quarter of 2022, start of production is scheduled for the second quarter of 2025.
Key performance indicators
| 4к2020 | 4к2021 | The change | |
|---|---|---|---|
| Ore mining, million tons | 3,4 | 4,1 | 20% |
| Ore processing, million tons | 3,7 | 4,1 | 12% |
| Gold production, thousand ounces | 322 | 385 | 20% |
| Silver production, Moz | 4,4 | 6,5 | 48% |
| Gold equivalent production, thousand ounces | 377 | 467 | 24% |
| Realization of gold, thousand ounces | 386 | 384 | −1% |
| Sale of silver, Moz | 5,2 | 4,9 | −7% |
Gold equivalent production by deposits in the fourth quarter, thousand ounces
| 4к2020 | 4к2021 | The change | |
|---|---|---|---|
| Red | 67 | 85 | 26% |
| Ducat | 66 | 96 | 46% |
| Albazino | 56 | 59 | 5% |
| Omolon | 58 | 55 | −4% |
| Varvara | 28 | 42 | 42% |
| Mayskoe | 61 | 54 | −11% |
| Light | 28 | 26 | −10% |
| Vorontsovskoye | 12 | 30 | 153% |
| Nezhda | 0 | 21 | 21 P. P. |
Financial results
Revenue in the fourth quarter of 2021 decreased by 6% against the backdrop of declining metal prices. The gap between the production and sale of silver, which was formed due to high volumes of metal output at Dukat in December, to be eliminated in the first half of 2022.
Back in the fourth quarter, Polymetal managed to generate significant free cash flow, which allowed the gold miner to reduce 13% its net debt to $1.647 billion. The value of the multiplier "net debt" / EBITDA" decreased from 1,37 to 1,1 compared to 2020 results.
Financial indicators, billion dollars
| 4к2020 | 4к2021 | The change | 2020 | 2021 | The change | |
|---|---|---|---|---|---|---|
| Revenue | 0,846 | 0,798 | −6% | 2,865 | 2,890 | 1% |
| net debt | 1,897 | 1,647 | −13% | 1,897 | 1,647 | −13% |
| net debt / EBITDA | 1,37 | 1,1 | −20% | 1,37 | 1,1 | −20% |
| Gold Price, $ | 1864 | 1796 | −4% | 1748 | 1791 | 2% |
Management forecasts
Polymetal management announced its forecast for 2022 for the production, cash and capital costs.
Production. In the next two years, it will be at the level of 2021: in 2022 Polymetal plans to produce 1.7 million ounces of gold equivalent, and 1.75 Moz in 2023. Recent events in Kazakhstan did not affect the operation of the Kyzyl and Varvarinskoye fields in any way.
Cash cost of production. The TCC indicator will increase in 2022 relative to 2021 by 20%, from 700-750 $ up to 850-900 $ per ounce of gold equivalent, and AISC - on 18%, to 1100-1200 $. The company explains the increase in costs by increasing labor costs in Russia and Kazakhstan, rising prices for commodities, including diesel fuel, gas and steel, as well as problems with maritime freight transport.
Capital expenditures. The company expects, that this figure will increase by $90 million, up to 700 million dollars, compared to previous forecast. The main reasons for this are the growth of investments in Veduga and Albazino, as well as in the accelerated construction of factories in Kutyn and the Urals.
Forecast for 2022
| 2021 | Forecast 2022 | |
|---|---|---|
| Production, Moz | 1,677 | 1,7 |
| TCC | 700—750 $ | 850—900 $ |
| AISC | 925—975 $ | 1100—1200 $ |
| Capital expenditures, million dollars | 675—725 | 700 |
Dividends
26 August 2020, Polymetal's management adopted a new dividend policy to increase transparency in the issue of profit distribution. Company, as before, will make two payments per year - for the first and second half of the year. Dividend rate of the gold miner:
- In the first half of the year, the company distributes 50% adjusted net income, if the indicator "net debt / EBITDA" less than 2,5.
- In the second half of the year, Polymetal can pay from 50% adjusted net income before 100% free cash flow - depending on macroeconomic forecasts, the level of debt burden and future capital investments.
Against the backdrop of a weak outlook for 2022, management believes, that additional payments for the second half of 2021 to the regular dividend should not be expected. Polymetal will distribute only 50% adjusted net income, but not 100% free cash flow, as it was done a year ago. Ultimately, this will lead to, that the total dividend for 2021 will not exceed the payment for 2020 - the dividend for the second half of the year will be less than 0,83 $.
What's the bottom line?
Polymetal reports neutral operating results for the fourth quarter of 2021, but gave a disappointing forecast for 2022, at which the company's production costs will increase immediately by 20%.
Investors reacted negatively to this information., because the growth of TCC and AISC will lead to a decrease in financial results and dividends this year. Shares rightly fell by almost 6%.
